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Grabbing a share of an exceptional organization as it is just entering a key turning point in its corporate existence can pave the way to many years of impressive returns. Savvy investors in early shares of Microsoft (NASDAQ:MSFT) and even Wal-Mart (NYSE:WMT) achieved exceptional gains. Still, all good things eventually come to an end, and these market-leading investors found that these amazing stock picks had eventually reached their respective peaks and are now being traded at much lower levels.

By many accounts, the reality that these stocks managed to provide investors with a decade of solid returns is an impressive feat. Furthermore, the realization that Coca-Cola (NYSE:KO) has habitually delivered solid returns for many decades is, for lack of a better word, phenomenal. Any investor considering betting against this world-renowned king of the beverage world inside of the last fifty years would have found themselves seated amongst fools.

Even after a half century of uncontested success, there is a school of thought amongst a selected group of investors that would have many believe it is time to step off the Coca-Cola gravy train. Over a two week period in August, the short interest in Coca-Cola watched shares nearly double to 43 million - to date, this remains the second fastest growing short position of any stock held in the NYSE.

Is there a valid reason for short sellers taking bets against falling share prices of the Kings of Cola? For many, the answers seem all too obvious.

SUGAR: The War against Fat

Nations across the globe are becoming more health conscious. In fact, the United States of America has launched campaigns to fight rising obesity rates in record numbers. In widespread efforts to cut healthcare spending and lower the spread of diseases caused by poor nutrition, manufacturers of sugar-based soft drinks are being targeted in record numbers. Naturally, the makers of Coca-Cola have been developing strategies to include healthy products in their beverage roster. However, there is no denying that their flagship product, Coke, still holds the spot as their top seller worldwide.

Heightened global awareness about the negative effects of sugar-based drinks on health has begun to show signs of affecting company results. In just the first three weeks of August, Coca-Cola reported a 1.2% rise on sales. When compared to the sales of previous years, the evidence would suggest that growth is stalling.

What Happened to the Growth Potential?

Can Coca-Cola still be considered a growth stock? Despite the beverage maker's ability to boost sales by a minimum of 10% in four of the last five years due to some very strategic acquisitions, analysts forecast that the current fiscal year will only see a 3.4% rise in sales.

It has been forecasted that earnings will rise by a mere 4%, totaling $2 per share. Glancing into 2013, Coca-Cola is on the path to experience a 5% growth in sales (to $50.6 billion). However, this growth will be in part due to the company's expansion in the Fuze juice drink line. Share earnings should see a 9% spike, reaching $2.20 per share.

This is where many investors begin to lose focus. Traditionally, Coca-Cola has seen substantial market growth. This growth potential meant that investors were willing and able to accept a price-to-earning ration that far exceeded its earning growth rate.

However, in the event that Coca-Cola has finally reached its peak, then it is no longer plausible to continue to justify a premium PEG. Consider this, if Coca-Cola stocks see a trade value of only twelve times forward earnings, which would make the value of the shares $26, far below the current $38 per share price. This would result in a price target of $33 at a multiple of fifteen.

Considering that Coca-Cola obtains more than fifty percent of its sales from the overseas markets, and the recent pliability of the American currency, there could be indications that foreign-exchange losses could occur in the third quarter. In fact, analysts have recently reconsidered profit forecasts for the next three years based on this information alone.

Where's the Risk?

Beverage investments are always a wise choice for a well-rounded portfolio. Coca-Cola has routinely shown a capacity for strong acquisitions capable of enticing growth. The company should still be viewed as an upside risk. Traditional investors aside, professional and experienced short sellers are preparing to short these stocks. However, the fact that Coca-Cola is even being targeted to this extent could indicate a need to consider booking profits in this tried and tested winner.

Final Recommendations

Coca-Cola operates around a strong acquisitions strategy. They are poised for substantial growth. Stocks are falling, however, it may be wise to hold on to what you have - but, wait it out a few months before buying more.

Source: Is It Time To Pour Cola Down The Drain?