We've been asking ourselves recently if the market has placed a fair valuation on Monster Beverage. Let's dive into some of the fundamental values of this large-cap Consumer Staples company to determine if there might be an opportunity here for value-minded investors.
The Market May Be Overvaluing Monster Beverage's Earnings and Assets:
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 belongs to the Consumer Staples sector, which has an average price to earnings (P/E) ratio of 24.36 and an average price to book (P/B) ratio of 4.29. In contrast, Monster Beverage has a trailing 12 month P/E ratio of 42.1 and a P/B ratio of 7.6.
Monster Beverage's PEG ratio is 1.56, which shows that the stock is probably overvalued in terms of its estimated growth. For reference, a PEG ratio near or below 1 is a potential signal that a company is undervalued.
An Exceptionally Strong Balance Sheet:
| 2018-03-01 | 2019-02-28 | 2020-02-28 | 2021-03-01 | 2022-02-28 | 2023-03-01 | |
|---|---|---|---|---|---|---|
| Revenue (MM) | $3,369 | $3,807 | $4,201 | $4,599 | $5,541 | $6,311 |
| Gross Margins | 63.0% | 60.0% | 60.0% | 59.0% | 56.0% | 50.0% |
| Operating Margins | 36% | 34% | 33% | 36% | 32% | 25% |
| Net Margins | 24.0% | 26.0% | 26.0% | 31.0% | 25.0% | 19.0% |
| Net Income (MM) | $821 | $993 | $1,108 | $1,410 | $1,377 | $1,192 |
| Earnings Per Share | $1.42 | $1.76 | $2.03 | $2.64 | $2.57 | $2.23 |
| EPS Growth | n/a | 23.94% | 15.34% | 30.05% | -2.65% | -13.23% |
| Diluted Shares (MM) | 577 | 564 | 547 | 535 | 536 | 535 |
| Free Cash Flow (MM) | $1,081 | $1,244 | $1,223 | $1,412 | $1,198 | $1,075 |
| Capital Expenditures (MM) | -$93 | -$82 | -$109 | -$48 | -$43 | -$187 |
| Net Current Assets (MM) | n/a | n/a | n/a | n/a | n/a | n/a |
Monster Beverage has weak revenue growth and a flat capital expenditure trend, flat EPS growth, and irregular cash flows. We also note that the company benefits from strong margins with a negative growth trend and an excellent current ratio. However, the firm has slimmer gross margins than its peers.
