PepsiCo (NASDAQ: PEP) has been a lackluster investment over the past three years. Its stock only rose 9% and delivered a total return of 19% after including its reinvested dividends. In comparison, the S&P 500 generated a total return of 31%.

PepsiCo underperformed the market as inflation, a strong dollar, and several major recalls throttled its growth. However, its attractive forward dividend yield of 3.1% and its reputation as a safe-haven stock prevented it from dropping off a cliff. Should investors still buy PepsiCo in anticipation of bigger gains over the next three years?

What happened over the past three years?

PepsiCo is one of the world's largest beverage and packaged-food companies. Its beverage division sells its eponymous soda, other carbonated drinks, and a wide variety of fruit juices, teas, bottled water, and sports drinks. It sells packaged-food products through its Frito-Lay, Quaker Foods, and Pioneer Foods divisions.

In 2023, PepsiCo's net and organic revenue growth decelerated. Inflation forced it to raise prices and shrink its packages, and it grappled with slower spending in China and Latin America. Several safety-related recalls -- including a major one caused by a salmonella outbreak at Quaker Foods -- exacerbated its slowdown.

Its core earnings per share (EPS) growth accelerated on a constant-currency basis in 2023, but the strong dollar offset most of those gains. As a result, its reported EPS rose just 2%.

Data source: PepsiCo. EPS = earnings per share.

For 2024, PepsiCo expects its organic revenue to rise approximately 4% as its core constant-currency EPS grows "at least" 8%. In its second-quarter conference call, CEO Ramon Laguarta said it was resolving its safety and supply chain issues at Quaker and the company still felt "good about the second half of the year."

What will happen to PepsiCo over the next three years?

PepsiCo plans to gradually lower its prices again as inflation eases. Laguarta expects its businesses to gain more "momentum" in 2025 as it laps its recalls, the macro environment warms up, and it launches new marketing campaigns. It also plans to ramp up its investments in new products for China and Latin America.

From 2023 to 2026, analysts expect PepsiCo's reported revenue to grow at a compound annual growth rate (CAGR) of 4% as its reported EPS rises at a CAGR of 12%. Its stock still looks reasonably valued at 22 times this year's earnings. Coca-Cola (NYSE: KO), which only sells beverages and is growing at a faster clip, trades at 27 times this year's earnings.

PepsiCo and Coca-Cola are both Dividend Kings that have raised their dividends for at least 50 straight years. PepsiCo has raised its dividend for 52 consecutive years, while Coca-Cola has boosted its payout for 62 straight years. Both companies should continue to raise those dividends over the next three years.

Assuming PepsiCo continues to trade at 22 times earnings, matches Wall Street's expectations, and grows its EPS by another 12% in 2027, its stock could rally more than 30% to about $230 over the next three years. That would represent an acceleration from its tepid returns over the past three years, but it wouldn't guarantee that it outperforms the S&P 500 -- which has averaged an annual gain of 10% over the past two decades.

Is PepsiCo the right stock to buy now?

PepsiCo is a fine place to park your cash and earn some dividends. Its business is well-diversified, generates stable growth, and is reasonably valued. However, Coca-Cola still offers a better mix of value, growth, and income than PepsiCo, while a simple S&P 500 index fund might generate bigger gains over the next three years.

Income investors can also get higher risk-free yields from CDs and T-bills. That's why PepsiCo isn't a stock I would rush to buy in this volatile market.

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Leo Sun 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.

Where Will PepsiCo Stock Be in 3 Years? was originally published by The Motley Fool