Is it Time to Tame this Monster?

By Ryan Guenette - August 7, 2012 | Tickers: KO, DPS, MNST, FIZZ, PEP | 0 Comments

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Monster Beverage Corporation (NASDAQ: MNST) has been on a rampage during the last year. The company has risen 44.95% year to date and 76.51% over the course of the last year, racing to new all-time highs nearly every day, yet recently Monster has seemed more like a terrified kitty cat than the monster it is. During the last month Monster Beverage has declined 10.82% while the S&P 500 has rallied 1.24%. An investor would have to look back several years to find a month in which Monster has underperformed the market. This huge correction in the stock has been viewed as “healthy” by many analysts as Monster has been on a nearly vertical path upward over the past years, so is it the perfect time to tame this beast?

Petrifying Earnings Growth

In 2009, Monster Beverage Corporation reported earnings per share of $1.11. In 2014, the street approximates Monster’s earnings per share climbing to $3.06, representing 175.68% earnings per share growth over this 5 year period. That is an average year over year earnings per share growth rate of 35.14%, a rate not seen in many companies. Monster’s growth rate is consistently in the double digits, except for a slight slowdown from 2009-2010, and will undoubtedly act as a catalyst for the stock in the coming years. The chart below displays Monster’s sales, operating profit, net income, net margin, operating margin, and earnings per share over the foreseeable future.

Expanding in Every Direction

Approximately 95% of Monster’s revenue is derived from its energy drink brands, which is competing with energy drinks such as Red Bull. The chart below displays the projected evolution of the energy beverage industry reported by Morgan Stanley.

Monster Beverages are already the second most popular energy drinks in terms of sales in the United States, and may one day take over Red Bull, but at the moment seems to be steady at the number two spot. Where Monster will find the majority of its growth is undeniably in international markets. Since 2009, the percentage of sales derived from international markets has grown 55%, from 13% to 20%. Key markets Monster has targeted for in 2012 are South Korea, in February, Japan, in May, and both China and India, in the second half of 2012. Penetration into these markets will not be easy, especially in China where herbal energy drinks have a long-standing monopoly on the industry, but entry into these markets would be colossal for Monster Beverage Corporation. Most recently, when Monster Beverage Corporation reported earnings in May, international sales rose 43%. All in all, Monster Beverage Corporation expected growth is perfectly put by Stifel Nicolaus analyst Mark Astrachan, "Demand for Monster Energy remains robust and (we) continue to estimate sustained low double-digit sales growth over the next three-five years resulting from further U.S. share gains, innovation, and international expansion.”

Is Monster The King of The Beverage Industry?     

Compared to some of Monster Beverage Company’s most prominent competitors, such as: Dr. Pepper Snapple Group Incorporated (NYSE: DPS), The Coca-Cola Company (NYSE: KO), PepsiCo Incorporated (NYSE: PEP), and National Beverage Corporation (NASDAQ: FIZZ), Monster stacks up relatively favorably.

In terms of growth, Monster leads the industry by a marginable rate, while PepsiCo stands out to the downside. Dr. Pepper Snapple, Coca-Cola, and PepsiCo all pay out dividends, with Dr. Pepper paying out the largest dividend, and having the fastest growing dividend. In the fundamental ratio comparison, Monster has the highest price to earnings ratio in the industry, while National Beverage Company appears to be trading with the lowest ratio. However, when growth is taken into account in the price to earnings to growth ratio, Monster is the cheapest stock in the industry, while PepsiCo appears to be trading at an extreme premium. In the net profit margin comparison, Monster is towards the top of the industry with Coca-Cola standing out to the upside, and National Beverage Company standing out to the downside. 

The Foolish Bottom Line

Monster Beverage Company has been on a rampage, nearly doubling in the past year, but does possess a price to earnings ratio above 40. That has prompted some analysts to say the stock is expensive and overpriced, yet when growth is taken into account, Monster is the cheapest stock in the sector. Monster is growing at solid double digit marks, and should continue to find explosive growth from its introduction of products to Asian markets. Monster still has a long way to go towards being a globally recognized brand, yet this aspect makes Monster even more attractive. When push comes to shove, Monster Beverage Company is growing at extreme rates, expanding into fresh Asian markets, and rewarding investors handsomely, and will continue to do the same thing in the years, making it time to tame this monster.  

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