I recently saw a LinkedIn article on using ChatGPT to analyse stocks, so I decided to try it out on Coca-Cola (NYSE: KO):
Step 1: Understanding the business of the company
- Production and distribution of non-alcoholic beverages
- Revenue streams also include the sale of concentrate and syrup and bottling and canning operations, which produce and distribute the final product to consumers
- Sells to consumers through various channels, including retail stores, vending machines, and online platforms
- Other income streams include partnerships, sponsorships, and advertising
Step 2: Understanding the larger environment (SWOT)
Step 3: Evaluating financials
Revenue: Coca-Cola has seen steady revenue growth over the past few years, with revenue reaching over 31 billion USD in 2020. The company's revenue is primarily driven by its non-alcoholic beverage business, which includes well-known brands such as Coca-Cola, Sprite, and Fanta.
Expenses: The company's largest expenses are cost of goods sold (primarily the cost of ingredients and packaging) and marketing and advertising. In 2020, these expenses amounted to approximately 21 billion USD and 4 billion USD, respectively.
Profitability: Coca-Cola has a strong profitability, with a net profit margin of around 10% in 2020. This is higher than the average net profit margin for the beverage industry.
Growth Trends: Coca-Cola has seen modest growth in recent years, with a low single-digit increase in revenue and earnings per share. The company has been investing in its operations and expanding into new markets, which is expected to drive future growth.
Revenue: Coca-Cola has seen steady revenue growth over the past few years, with revenue reaching over 31 billion USD in 2020. The company's revenue is primarily driven by its non-alcoholic beverage business, which includes well-known brands such as Coca-Cola, Sprite, and Fanta.
Expenses: The company's largest expenses are cost of goods sold (primarily the cost of ingredients and packaging) and marketing and advertising. In 2020, these expenses amounted to approximately 21 billion USD and 4 billion USD, respectively.
Profitability: Coca-Cola has a strong profitability, with a net profit margin of around 10% in 2020. This is higher than the average net profit margin for the beverage industry.
Growth Trends: Coca-Cola has seen modest growth in recent years, with a low single-digit increase in revenue and earnings per share. The company has been investing in its operations and expanding into new markets, which is expected to drive future growth.
Step 4: Key risks
1. Competition: The beverage industry is highly competitive, and Coca-Cola faces significant competition from both established players and new entrants. This could impact the company's market share and profitability.
2. Health and wellness trends: Consumers are becoming increasingly health-conscious, which has led to a decline in demand for sugary drinks like Coca-Cola. The company has been investing in healthier beverage options, but this may not be enough to offset declining sales of its traditional products.
3. Changing consumer preferences: Consumer preferences are constantly evolving, and Coca-Cola must be able to adapt to these changes in order to remain relevant. The company may struggle to keep up with changing consumer trends, particularly in the fast-moving beverage industry.
4. Economic conditions: The beverage industry is highly sensitive to changes in the economy, and a downturn could impact Coca-Cola's revenue and profitability.
5. Commodity price volatility: Coca-Cola's products contain a number of key ingredients, such as sugar and corn syrup, that are subject to price fluctuations. This could impact the company's costs and profitability.
6. Geopolitical risks: Coca-Cola operates in a number of countries around the world, and geopolitical risks such as economic sanctions, trade restrictions, and conflict could impact its operations and financial performance.
1. Competition: The beverage industry is highly competitive, and Coca-Cola faces significant competition from both established players and new entrants. This could impact the company's market share and profitability.
2. Health and wellness trends: Consumers are becoming increasingly health-conscious, which has led to a decline in demand for sugary drinks like Coca-Cola. The company has been investing in healthier beverage options, but this may not be enough to offset declining sales of its traditional products.
3. Changing consumer preferences: Consumer preferences are constantly evolving, and Coca-Cola must be able to adapt to these changes in order to remain relevant. The company may struggle to keep up with changing consumer trends, particularly in the fast-moving beverage industry.
4. Economic conditions: The beverage industry is highly sensitive to changes in the economy, and a downturn could impact Coca-Cola's revenue and profitability.
5. Commodity price volatility: Coca-Cola's products contain a number of key ingredients, such as sugar and corn syrup, that are subject to price fluctuations. This could impact the company's costs and profitability.
6. Geopolitical risks: Coca-Cola operates in a number of countries around the world, and geopolitical risks such as economic sanctions, trade restrictions, and conflict could impact its operations and financial performance.
Step 5: Investment thesis
Overall, KO is a great defensive stock to invest in, especially during times of volatility and economic downturns. The company has a strong history, diversified revenue streams and strong brand recognition. Although consumer tastes and preferences might be changing, with strong management leaders and financial performance, KO should have sufficient dry powder to experiment and stay ahead of competitors.
- Able to discover potential weaknesses of competitors to see where companies can thrive and do better
- Able to efficiently analyse a company's business model and the industry for quick baseline understanding, but unable to contextualise this information in current markets
- Able to point out how to use discounted cash flow model to find the fair value of the stock, but unable to actually perform those calculations
- Limitation of information from its database - ChatGPT's database only contains information up till 2021
My thoughts:
ChatGPT is definitely a game-changer. We are able to find out an immense amount of information at our fingertips, at an even greater convenience than Google. From this example of stock analysis, it is able to provide several important pieces of information investors typically look out for without having to read its financial statements and company website. However, being an AI based on a database, the platform is limited to the information stored in its database - it cannot provide timely info that the stock market needs, only historical information. Even a typical retail investor looking for stocks to buy may refer to this for a brief description of the business, but it would be prudent to look at the company's financial reports for a more accurate understanding of the company.
No comments:
Post a Comment