The Coca-Cola Company (KO -2.06%) is in a precarious situation right now. The soft drink giant's stock tends to trade in close alignment with the S&P 500 (SNPINDEX: ^GSPC) market index, but things have changed this year. Coke's shares took a tumble in October and have stayed down since then.

Coca-Cola's year-to-date total return sits at 11% on Tuesday, December 3. The S&P 500 showed a total gain of 28% over the same period. Does this price drop make Coca-Cola a good buy or is it a dangerous warning flag -- or something in between?

Let's check out what's going on with Coca-Cola to help you find the right course of action with this classic blue-chip stock.

Why you may want to sell Coca-Cola stock today

Coca-Cola's latest earnings report started a price slide. Three weeks later, the stock had dropped 9% lower. The headline results were slightly better than expected, but there were a few issues bubbling under the surface:

• Despite an advanced hedging system, Coca-Cola is exposed to large financial challenges when foreign currency rates are moving quickly in relation to the U.S. dollar. This effect became a 9% headwind to Coca-Cola's total sales in 2024. Inflation pressure in large soft drink markets such as Argentina, Venezuela, and Turkey should result in a lower but still significant revenue slowdown in 2025.
• The ingredients used to make Coke's various drinks are getting more expensive over time. The same uncomfortable trend applies to bottles and cans, too. Coca-Cola is adjusting its prices to pass on some of these rising costs to the consumer, but going too far would hurt the end-market demand for Coke's products. Like all other consumer goods businesses, this company walks a tightrope between shrinking margins and lower sales -- and it's harder to find the right balance in an unstable economy.
• The company's sales growth has stalled out. Third-quarter revenues were 1% below the year-ago period's. That's not a good look when production costs are rising. Most investors expect business growth in the long run, and Coca-Cola isn't delivering that quality right now.
• You might expect a slow-growing consumer goods stock to trade at very affordable valuation ratios, but Coke treads a different path. Whether you measure the stock's worth by price to sales, price to earnings, or price to free cash flows, Coca-Cola shares trade at a generous premium to rivals like PepsiCo (NASDAQ: PEP) and Keurig Dr. Pepper (NASDAQ: KDP).

Why Coke stock might be a buy anyway

Starting with the valuation question, Coca-Cola earns its premium share price by running a more profitable business than Pepsi or Dr. Pepper. Even in challenging times, the largest beverage brewer still carries wider margins across the whole income statement. This company essentially sells drink concentrates to a massive network of bottling and distribution partners, resulting in lower capital costs and operating expenses.

So I'm not too worried about the stock price, especially after a generous price dip in November. As for the ingredient pricing and currency exchange rates, the same issues apply to every global empire. These problems might make me keep cash on Wall Street's sidelines, but they don't scare me away from Coca-Cola's stock in particular.

Finally, the global inflation crisis is almost over and most of Coca-Cola's core markets are getting back on their feet. The company probably won't need to adjust prices a whole lot next year. It's time for "business as usual" again, after about two years of economic pressure. That shift can only be good for consumer goods as a whole.

Image source: Getty Images.

Final findings: Coca-Cola looks more solid than sweet

You could do a lot worse than Coca-Cola if you're seeking long-term stability and robust dividends, with an annual yield of 3.1% at today's prices. In that category, a single-year return of 11% would usually look fantastic. 2024 is a special case with every stock bouncing back from a couple of terrible years.

Where does Coca-Cola's stock land on the buy, hold, or sell scale? This stock isn't on fire sale and Coca-Cola faces a handful of serious business challenges, so I wouldn't call it a "strong buy" today. I'm not a seller of Coke stock either, as the company's legendary brand and lean business model should provide a comfortable cushion for any market downturn.

So you could buy a few shares if you crave that financial stability, or sell if you see more exciting places to park your cash. But you should probably keep doing whatever you're already doing with this stock. Coca-Cola is a hold in most situations.