Why Kraft Heinz Trades at a Steep Discount to PepsiCo – Is the Gap Justified?

Key Points

• Employing a standard valuation metric enables investors to compare companies effectively.

• Kraft Heinz trades at a lower price‑to‑sales ratio than both PepsiCo and the broader S&P 500.

• Nevertheless, investors should look beyond the valuation multiple and assess each firm’s long‑term outlook.

When evaluating a company, the share price alone tells only part of the story. Metrics such as the price‑to‑earnings (P/E) or price‑to‑sales (P/S) ratio provide a more objective basis for comparison.

Yet valuation is just one piece of the investment puzzle. Understanding why a stock appears cheap is essential—sometimes the market flags long‑term challenges, while at other times short‑term noise drives the discount.

Because Kraft Heinz currently reports no earnings, the P/E ratio cannot be applied. Investors therefore turn to the P/S ratio, which shows Kraft Heinz priced well below PepsiCo.

Should Kraft Heinz be viewed as a genuine value opportunity or a value trap to avoid?

Image source: Getty Images.

The comparison

As of September 18, Kraft Heinz’s price‑to‑sales ratio stands at 1.2, compared with 1.8 for PepsiCo. Both companies trade at a notable discount to the S&P 500, which carries a P/S multiple of approximately 3.8.

Since the merger of Kraft Foods and H.J. Heinz in July 2015, the combined entity has faced headwinds. In an effort to revitalize the business, the board appointed Steve Cahillane as chief executive officer, effective January 1.

Early in his tenure, Cahillane scrapped the planned separation of the grocery and sauce/spreads divisions and announced an additional $600 million investment in marketing, sales, and research and development.

Despite these initiatives, sales have continued to weaken. Adjusted second‑quarter revenue fell 1.3 % after stripping out foreign‑currency effects and divestitures, and full‑year 2026 guidance calls for a sales decline of between 0.5 % and 2 %.

PepsiCo’s turnaround has progressed more favorably. Following engagements with activist investor Elliott Investment Management, the company pursued lower pricing, new product development, and cost‑cutting measures.

The initial consumer reaction to reduced prices has been positive, boosting volume. PepsiCo’s adjusted second‑quarter revenue rose 2.4 % year‑over‑year, with higher volume contributing roughly one percentage point of that gain.

Value stock or value trap?

After weighing the evidence, an informed investment decision can be made.

Kraft Heinz’s declining sales suggest that its low valuation relative to PepsiCo and the S&P 500 is justified, indicating characteristics of a value trap. Consequently, avoiding the stock may be prudent.

Conversely, PepsiCo’s attractive valuation relative to the market, coupled with signs of operational improvement, makes it a compelling candidate for value‑oriented investors.

Should you buy stock in Kraft Heinz right now?

Before taking a position in Kraft Heinz, consider the following points.

The company’s lack of earnings limits the usefulness of the P/E ratio, pushing analysts to rely on the P/S metric, which currently shows a significant discount to peers.

While the low price may appear tempting, persistent sales weakness and modest growth prospects raise concerns about whether the discount reflects genuine value or enduring challenges.

Investors seeking value should weigh these factors carefully and may prefer alternatives with stronger fundamentals.

Source link