Is PepsiCo a Buy, Sell, or Hold in 2025?

PepsiCo (NASDAQ: PEP) has been a productive investment for generations. The company makes enough money to share profits with investors via dividends and has raised the amount it pays for 52 consecutive years. You could call it a perk of selling beloved food and beverage products to a global customer base of roughly 8.2 billion people (and growing). There's just a seemingly endless runway for growth.

However, shares are in a slump. PepsiCo has declined 25% since its all-time high in 2023. It's a rare drop for such a respected company, its farthest fall since the financial crisis in 2007-2009. Should investors buy PepsiCo in 2025, or has the company peaked?

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PepsiCo's growth could slow

PepsiCo has grown for decades by selling more products, launching and acquiring new brands, and raising its prices. However, growth has increasingly depended on pricing since the COVID-19 pandemic. At face value, the chart below shows that business has been great, with impressive revenue growth over the past five years.

PEP Revenue (TTM) data by YCharts

Yet it's not the whole story. According to data from the Federal Reserve Bank of St. Louis, the price of 16 ounces of potato chips in the United States has increased by 44% since January 2020. A typical two-liter bottle of soda costs 33% more today than back then. This data isn't brand-specific, but PepsiCo is the largest snack food and second-largest non-alcoholic beverage company in the U.S. You can reasonably connect the dots here.

It's not that PepsiCo has padded its pockets; its gross margin is roughly the same today as five years ago. Instead, it reflects growth through inflation rather than consumers buying more. The problem is that consumers will only tolerate higher prices for so long. PepsiCo notched 2% organic revenue growth in 2024, but its volumes slipped by 1%, so it was all price-driven. Frito-Lay volumes dipped 2.5% in North America, and beverages fell 3%.

Consumers seem to be fed up with higher prices. At least in the short term, further price hikes may cost it volume, offsetting the benefit of raising prices. I'm not saying PepsiCo won't grow, but the company could struggle to move the needle following these past five years.

The business still has a strong financial pulse

Don't worry. PepsiCo isn't facing a collapse. This is still as dependable a business as investors could hope for.

Most people buy PepsiCo stock for the dividend. The company is a Dividend King, and that's unlikely to change anytime soon. The dividend payout ratio is approximately 65% of 2025 earnings estimates. PepsiCo's fortress-like balance sheet is a nice safety net, with $9.2 billion in cash and a credit rating comfortably in investment-grade territory.

PepsiCo's prices may turn some shoppers away, but it's hard to imagine a major decline. The company's brands are household favorites and include products like Pepsi, Mountain Dew, Gatorade, Doritos, Lay's, Cheetos, Ruffles, Crush, and Quaker, among many more. PepsiCo's trailing-12-month sales haven't declined more than 7.6% in 15 years.

Again, growth may slow, but investors can probably still expect modest growth and incremental dividend raises.

Valuation matters more than ever

As great as PepsiCo is, investors must be extra vigilant about valuation. Overpaying for a slow-growing stock can be disastrous for total investment returns.

PepsiCo stock is mainly sliding because the market is adjusting to lower growth expectations. Both PepsiCo's price-to-earnings ratio and long-term growth estimates have fallen to multiyear lows:

PEP PE Ratio data by YCharts

The good news is that the dividend yield has risen to 3.7%, its highest ever. High dividend yields are often a red flag, but not in this case. Investors are getting more immediate dividend income for their money because the market anticipates lower growth (share price appreciation).

So, is PepsiCo a buy?

From a pure growth standpoint, nearly 21 times earnings is a pricey valuation for 4% to 5% annualized growth. However, investors frequently pay more for blue chip companies like PepsiCo because they are dependable. You can reasonably assume PepsiCo will still be here decades from now.

It's hard to call PepsiCo a strong buy without more growth potential. Dividend investors could argue for the high and dependable yield, but otherwise, I think the stock would be more appealing at a P/E closer to 15 to 17.

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Justin Pope has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.