A Monstrous SWOT: Big Growth at a Cheaper Price
Josh is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
One of the simplest ways to get an overview of a company's operations is through a SWOT analysis. Here the main strengths, weaknesses, opportunities, and threats of the company are laid out for all to see. Having seen its stock price crushed to the tune of 40%, due to Coca-Cola's denial of buying interest, potential litigation, and a less than perfect quarterly earnings report, Monster Beverage (NASDAQ: MNST) is selling at quite a discount to its former all-time highs.
Today we will take a look at Monster and see if it will be able to get back on track and justify its less lofty valuations.
- Sales Growth- With 1, 3, 5, and 10 year growth rates of 30, 19, 17, and 36% respectively, Monster has shown a strong ability to increase its top line. Despite the recent sell-off due to revenue growth of "only" 14%, Monster's CEO Rodney Sacks reported that October's YOY revenues were up 28%, which could offer a strong outlook for Quarter 4.
- Geographical Expansion- Monster is rapidly becoming a global brand, as they blatantly described in their 2011 Annual report. Last year alone they introduced Monster Energy drinks to Colombia, Cyprus, Denmark, Estonia, Greece, Iceland, Latvia, Lebanon, Lithuania, Malta, Mauritius, Portugal, Russia, Tahiti, and Ukraine. Continuing on into 2012, they have announced further growth into Europe and South America as their main goal.
- Recently Developed Products- Newly created Monster Rehab drinks will help them compete against Rockstar's fast-growing Recovery drinks. Similarly, Monster's new Coconut Water and Energy Zero Ultra, will help them battle in the natural, and zero calorie/sugar markets respectively.
- Strong Metrics- With a Rule Makers frame of mind, Monster holds some very interesting metrics: Gross Margin of 53%, Profit Margin of 17%, its previously mentioned growth, no debt, and basic valuations moderately below their 10 year averages.
- Market Share- With a 36% market share versus Red Bull's 41%, Monster is solid, but not dominant in the Energy Drink market. Furthermore, in the smaller, but higher margin Energy Shot market, 5 Hour Energy has pulled away from the competition, holding a 90%+ market share. However, considering Monster's growth from a 14% market share in 2006, versus Red Bull's 43%, it could also be said this is a growing positive trend.
- Dependence on Energy Drink Sales- 91.8% of Monster's sales come from its Monster Energy drink segment, which leaves it wildly vulnerable to any downswing in the market or future legislation that may limit its sales. Further growth of its Monster Energy drinks would be great, but would only amplify this risk.
- Distribution Model- Monster is fairly vulnerable to its bottling, distributing, and customer relations as it would basically be unable to operate without these relationships.
- International Growth Runway- Focusing on new growth in Eastern Europe and South America, while not being fully integrated into Russia and Ukraine just yet, Monster has a lot of remaining international growth ahead of it. With existing operations still returning large growth numbers, any profitable international expansion would be added opportunity.
- Buyout Target- Being in discussions with Coca-Cola earlier in the 2012 year and all the way up through May, Monster has become a topic of discussion in the buyout arena. With its 40% drop in stock price, it is plausible that now might be the time for larger business to pick up the knocked down energy drink maker.
- New Product Pipeline- Boasting its new Hansen's Coconut Water, Monster has begun to place more emphasis on growing its Warehouse segment, consisting mostly of juices and natural sodas. Contributing to less than 10% of Monster's revenue, this could become a new growth runway for the company as it focuses more on its Hansen's roots.
- Litigation- With recently breaking news of 5 deaths being linked to Monster Energy drinks, the company has to face the potential of more lawsuits upcoming and worse yet, possible government ramifications. With big soda bans in place in New York, one can't help but imagine its only a matter of time before similar actions occur versus Monster and its "dangerous" caffeinated drinks. It is worth noting however, that many of Starbuck's drinks contain as much or more caffeine than Monster's Energy drinks, yet haven't faced as much public scrutiny.
- Starbucks (NASDAQ: SBUX)- As for Starbucks, they have begun hitting the Energy Drink market hard themselves as they have greatly expanded their Ready-to-Drink Coffee arsenal in stores, and plan on opening 1,000 new stores in the US over the next 5 years. Trading with the same reasonable Forward PE of 19 as Monster, Starbucks may offer an alternative not only for caffeine drinkers, but investors alike.
- Red Bull- Red Bull has simply continued to dominate the energy drink market with its simple strategy and premium pricing. By sending a man to space only to let him parachute back to earth, and sponsoring other daring acts of mankind, Red Bull and Monster have squared off in a battle of marketing. Holding a majority market share versus the field with its simple Red Bull energy drink design, they will be hard to budge from their market share leading throne.
- Rockstar- Finally, with Rockstar, we have a third string quarterback so to say, as they have been locked into the third spot in market share every year since 2006. While this isn't all too impressive in itself, their new Rockstar Recovery drink has exploded in the last year, forcing Monster to create its own version of the drink.
Foolish Final Considerations
With this SWOT analysis presented, Monster can be seen as a company with a quality growth runway in its future. Having new countries to expand to while earning new customers through its latest drink creations, Monster will do everything in its power to make its most recent quarter a mere blip in the radar.
Now trading at only 24 times its earnings, and being cut down to $45 a share from its all time high of $78, Monster is worthy of being held for the longterm, as its great growth story continues. Having green-thumbed Monster previously at $54, I see its current price as a great entry point for long term buyers of the company.
joryko has no positions in the stocks mentioned above. The Motley Fool owns shares of Starbucks and has the following options: short JAN 2013 $47.00 puts on Starbucks. Motley Fool newsletter services recommend Monster Beverage and Starbucks. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.