Beverages company Monster Beverage is standing out today, surging to $96.6 and marking a 6.0% change. In comparison the S&P 500 moved only -0.2%.
MNST currently sits within range of its analyst target price of $100.85, which implies that its price may remain stable for the near future.
Surprisingly, analysts give the stock an average rating of buy, which shows that they believe prices could continue to move. Over the last year, Monster Beverage shares have outperformed the S&P 500 by 20.2%, with a price change of -0.6%.
Monster Beverage Corporation, through its subsidiaries, engages in development, marketing, sale, and distribution of energy drink beverages and concentrates in the United States and internationally. The company is in the consumer defensive sector. It markets so-called staple goods and services that consumers tend to purchase regardless of their discretionary income. Thus, sales revenue tends to remain relatively unchecked by economic downturns, which in turn can contribute to share price stability. The flipside is that defensive stocks may see comparatively little growth during periods of economic growth.
Monster Beverage's trailing 12 month P/E ratio is 41.8, based on its trailing Eps of $2.31. The company has a forward P/E ratio of 32.3 according to its forward Eps of $2.99 -- which is an estimate of what its earnings will look like in the next quarter.
The P/E ratio is the company's share price divided by its earnings per share. In other words, it represents how much investors are willing to spend for each dollar of the company's earnings (revenues minus the cost of goods sold, taxes, and overhead). As of the third quarter of 2022, the consumer defensive sector has an average P/E ratio of 24.21, and the average for the S&P 500 is 15.97.
MNST’s price to earnings ratio can be divided by its projected five-year growth rate, to give us the price to earnings, or PEG ratio. This allows us to put its earnings valuation in the context of its growth expectations which is useful because companies with low P/E ratios often have low growth, which means they actually do not present an attractive value.
When we perform the calculation for Monster Beverage, we obtain a PEG ratio of 2.79, which indicates that the company is overvalued compared to its growth prospects. The weakness with PEG ratios is that they rely on expected growth estimates, which of course may not turn out as expected.
To gauge the health of Monster Beverage's underlying business, let's look at gross profit margins, which are the company's revenue minus the cost of goods only. Analyzing gross profit margins gives us a good picture of the company's pure profit potential and pricing power in its market, unclouded by other factors. As such, it can provide insights into the company's competitive advantages -- or lack thereof.
MNST's average gross profit margins over the last four years are 58.9%, which indicate it has a potential competitive advantage in its market. These margins are declining based on their four year average gross profit growth rate of -2.3%.
Another key to assessing a company's health is to look at its free cash flow, which is calculated on the basis of its total cash flow from operating activities minus its capital expenditures. Capital expenditures are the costs of maintaining fixed assets such as land, buildings, and equipment. From Monster Beverage's last four annual reports, we are able to obtain the following rundown of its free cash flow:
| Date Reported | Cash Flow from Operations ($) | Capital expenditures ($) | Free Cash Flow ($) | YoY Growth (%) |
|---|---|---|---|---|
| 2021-12-31 | 1,155,741,000.0 | -43,868,000.0 | 1,111,873,000.0 | -15.48 |
| 2020-12-31 | 1,364,163,000.0 | -48,722,000.0 | 1,315,441,000.0 | 29.97 |
| 2019-12-31 | 1,113,762,000.0 | -101,661,000.0 | 1,012,101,000.0 | -7.99 |
| 2018-12-31 | 1,161,881,000.0 | -61,941,000.0 | 1,099,940,000.0 | n/a |
- Average free cash flow: $1,134,838,750.00 %
- Average free cash flown growth rate: 2.2 %
- Coefficient of variability (the lower the better): 11.3 %
Free cash flow represents the amount of money that is available for reinvesting in the business, or for paying out to investors in the form of a dividend. With a positive cash flow as of the last fiscal year, MNST is in a position to do either -- which can encourage more investors to place their capital in the company.
Value investors often analyze stocks through the lens of its Price to Book (P/B) Ratio (market value divided by book value). The book value refers to the present value of the company if the company were to sell off all of its assets and pay all of its debts today - a number whose value may differ significantly depending on the accounting method.
Monster Beverage's P/B ratio indicates that the market value of the company exceeds its book value by a factor of 7, so the company's assets may be overvalued compared to the average P/B ratio of the Consumer Defensive sector, which stands at 4.09 as of the third quarter of 2022.
Monster Beverage is by most measures fairly valued because it has an inflated P/E ratio, an elevated P/B ratio, and a steady stream of strong cash flows with an upwards trend. The stock has mixed growth indicators because it has a an above average PEG ratio and strong gross margins that are shrinking. We hope you enjoyed this overview of MNST's fundamentals. Make sure to subscribe to our free newsletter for daily equity reports.
