PepsiCo Shares Have Potential For Short-Term Upside

PepsiCo, Inc. PEP shares have basically been in consolidation mode since the price peak at $100.80 on November 28, 2014.

The company has strong operations across multiple product categories and all over the world. The problem for such global organizations is how to achieve further growth. Is it to be strictly via acquisition, which may tax the company's balance sheet, or will it come from within via new product initiatives?

Let's take a look at the fundamental and technical pictures for Pepsi to get a better idea of where the stock may be headed.

What The Bulls See

• Some attractive valuation metrics: An enterprise value of $162.02 billion that easily trumps the stock's market capitalization of $141.85 billion and a price-to-sales ratio of 2.11.
• Net profit margins of 9.77 percent that spin off over $6.81 billion in positive levered free cash flow annually.
• Strong management effectiveness metrics: A return on assets of 8.45 percent and a return on equity of 31.28 percent.
• A decent short-term balance sheet as evidenced by the 1.14 current ratio.
• A healthy 2.7 percent dividend yield.

What The Bears See

• Some rich valuation metrics: A price-to-book ratio of 8.05 and a PE of 19 versus estimated revenue and EPS growth for the next year of 4 percent and 8.4 percent, respectively.
• Some sketchy balance sheet metrics: Total cash of $8.73 billion versus $28.90 billion in debt and a debt-to-equity ratio of 164.67 percent.

The Technical Take

Technicians or torn on where Pepsi shares may be headed. One group sees Pepsi possibly continuing its correction higher up to the $99.09 level. On the way there, they would need to conquer $96.68, $97.72 and $98.40 resistance levels. Another group of technicians note that the stock may have already concluded its upside correction and could be headed down to $88-$89 as wave "c" of an "abc" downside correction plays out.

Overall…

With mixed fundamental and valuation metrics, most investors are left to take their cues from the technicals of Pepsi stock. The technicals, however, are torn as well.

As a trader, the best play may be to wait for either support or resistance to be tested and to fade the most recent move. As a long-term investor, patience may be rewarded.