Coca-Cola used to be the kind of stock that Peter Lynch called a “stalwart.” It was a big company, not flashy, not likely to soar 100% in a year, but good for 8-12% most of the time. Dependable enough to accumulate 50% gains over four or five years.

Then Coke went flat.  The stock has done close to nothing in the last two years and is only up 13% since 2013.

That could be changing. Finally, Coke met earnings season with some good news.  Consumers are back on the zero-cal wagon. Coke’s bottled water and diet drinks are growing again.

In its latest earnings report, Coke revealed a healthy 6% growth in organic sales. Organic sales exclude adjustments for currency movements and income from divesting its bottlers.

Riding Consumer Trends Is Tricky

Colas have been tough sales in the last decade. Soft drink consumption began falling sharply in 2004 and continued to decline for 13 straight years. In late 2016 bottled water sales surpassed sodas for the first time. 

Coke’s good news today is the work of many years shifting the company into new trends. Its biggest move came in 2007, when Coke bought Glaceau Vitamin Water. At the time, analysts thought the purchase was outrageously overpriced. Coke paid Glaceau (Energy Brands) roughly 14 times annual sales. It has been a billion-dollar product for Coke for several years now.

Other Coke coups include Minute Maid, Odwalla, Honest Tea, Simply, and PowerAde. Coke also owns Dasani water.

Unlike PepsiCo, Coca-Cola is a dedicated beverage company. There’s no Pizza Hut chain or Fritos-style packaged snacks to diversify its sales.  When diet and health trends shift the company can take a big hit. In the past few years, the once-popular diet colas have been laggards. Diet soda sales peaked in 2005.

Over a 15-year span, while US diet soda sales fell 28%, single-serve bottled water sales grew 76% by volume, sports drinks rose 20% and tea drinks almost doubled their sales. 

The New Direction Builds on Old Successes

Now, suddenly, Diet Coke is back with a revamp. The company is marketing the revised diet drink in thin cans (thin! Get it!) with fruity flavor enhancements like Feisty Cherry and Zesty Blood Orange.

The cans are quite attractive, yet still with the iconic silver background and distinctive Coke lettering.

Rafael Acevedo, Coca-Cola North America’s group director for Diet Coke said the company wanted to the new diet Coke to reach “all kinds of fans – from people who have loved its great taste since it launched in 1982 to Millennial men and women who are always looking to try new things. We’re modernizing what has made Diet Coke so special for a new generation. The same unapologetic confidence still comes through and the same great Diet Coke taste people love is here to stay, but we’re making the brand more relatable and more authentic. We wanted to be bold, think differently and be innovative in our approach. And most importantly, we wanted to stay true to the essence of Diet Coke while recasting the brand for a new generation.”

The effort to relaunch and reinvigorate diet Coke illustrates the efforts stalwart companies need to do to stay on trend. Coke spent two years testing formulas and taste variations. It talked to more than 10,000 consumers to ask what they wanted.

Coke already has a winner in Coke Zero for fans who want their diet cola to taste like the full-sugar version. Coke Zero and PowerAde are both enjoying double-digit growth in North America.

The Next Move

Coke already has vitamin drinks, fruit juice, teas, water, and soft drinks. Now it’s making a move on coffee.

In August, Coke announced it was buying the British chain Costa Coffee for $5 billion.

Once again, analysts groaned the price was too high—about 16.4 times Costa’s earnings. Earnings. Not sales. Analysts seem not to have noticed the difference. Coke’s P/E ratio has lingered in the low- to mid-20s for the last seven years. It’s higher right now because of write-downs, but that’s an aberration. Bottom line—Coke is paying less for Costa than it would pay to buy back its own stock.

Besides, it’s never a good idea to bet that a stalwart can’t keep its eye on the future.