Monster Beverage (NASDAQ:MNST) has been among the best-performing stocks in the last three decades. Since June 1994, shares of Monster Beverage have returned a staggering 150,700%. This means a $100 investment 30 years back would have ballooned to more than $150,000 today. Comparatively, the S&P 500 index has returned “just” over 2,000% in this period. Thus, the question arises if it is too late to buy Monster Beverage stock?
For me the answer is a simple no, it is not too late. I am bullish on Monster Beverage due to its distribution partnership with Coca-Cola (NYSE:KO), reasonable valuation, and strong brand presence.
An Overview of Monster Beverage
Monster Beverage was founded as a family juice company called Hansen in 1935. Hansen filed for bankruptcy in 1988, after which it was acquired by South African billionaires Rodney Sacks and Hilton Schlosberg. The dynamic duo took the company public in 1990 and staged a remarkable turnaround in the last 34 years. In January 2012, Hansen Natural Corp. was rebranded as Monster Beverage, which manufactures energy drinks, alcohol as well as traditional beverages such as tea and coffee.
A Sound Business Model
In addition to consistent revenue and earnings growth, Monster Beverage built a sustainable strategy that has helped it thrive across market cycles. The company marketed its products at sporting events such as motocross, ultimate fighting championship (UFC), and NASCAR, while its peers targeted traditional platforms such as television and magazine ads.
Less than a decade ago, Monster Beverage inked a strategic partnership with Coca-Cola, providing it with a global distribution platform. Coca-Cola acquired a 16.7% stake in Monster Beverage for $2.2 billion. Today, this stake is worth more than $8 billion.
A Strong Quarter for Monster
In Q1 of 2024, Monster Beverage reported revenue of $1.9 billion, up almost 12% year-over-year. It ended Q1 with a gross profit margin of 54.1%, compared to 52.8% in the same period of 2023. The company’s gross margin expansion was related to lower freight costs, pricing actions in specific markets, and lower import costs, which were offset by its sales mix.
At the same time, Monster Beverage saw an increase in operating expenses, which stood at $485 million in Q1, up from $412 million in 2023. The rise in operating expenses was attributed to increased storage and warehouse costs, higher marketing prices, and increased payroll expenses.
Despite higher operating expenses, a wider gross margin and sales growth allowed Monster to report an operating income of $542 million, up 11.7% year-over-year. Its adjusted earnings per share also rose by 12% to $0.42 per share in the March quarter.
Monster Beverage Has Performed Well Amid Headwinds
Monster Beverage has performed well amid a challenging macro environment, as consumers are wrestling with headwinds such as inflation and interest rate hikes, both of which have driven consumer spending lower.
In fact, Monster Beverage implemented price increases in certain international markets where inflation ticked higher. The company emphasized that it continues to monitor opportunities for further pricing actions in the U.S. and other markets.
These trends suggest that Monster Beverage has established a brand name that helps it maintain demand across business cycles and navigate through an uncertain macroeconomy. It enjoys a market leadership position in the energy drink category for all outlets combined in the U.S.
A Focus on Marketing
As stated earlier, Monster Beverage has a differentiated marketing strategy. In 2023, it sponsored the MotoGP and several e-sports events, such as Call of Duty. Its brand ambassadors include legends such as Tiger Woods and Valentino Rossi, among others. With 8.6 million followers on Instagram, 2.89 million followers on TikTok, and 3.17 million YouTube subscribers, Monster Beverage continues to gain traction on social media and target the new-age audience.
What is the Target Price for MNST Stock?
Out of the 14 analyst ratings given to MNST stock, eight are Buys, five are Holds, and one is Sell, indicating a Moderate Buy consensus rating. The average MNST stock price target is $59.80, implying upside potential of 20.83% from current levels.
Analysts tracking Monster Beverage expect it to grow its adjusted earnings from $1.56 per share in 2023 to $1.78 per share in 2024 and $2.04 per share in 2025. So, priced at 27.5x forward earnings, Monster Beverage stock trades at a hefty premium, given the sector median multiple is much lower at 17.3x.
The Takeaway
Down 19% from all-time highs, Monster Beverage remains well-positioned to deliver market-beating returns to shareholders in the upcoming decade, given its steady earnings growth, unique marketing strategies, and a widening product portfolio.
