Tumbling to a price of $50.09 during today's evening trading session, shares of Monster Beverage are now -19.39% below their average target price of $62.14. Does this mean the stock will reverse course? Analysts are giving MNST an average rating of buy and target prices ranging from 51.5 to 72.0 dollars per share.
The market seems to share this optimistic view, since Monster Beverage has a short interest of only 1.7% (this is the percentage of the share float that is being shorted). Each short position represents an investor's expectation that the price of the stock will decrease in the future.
Short selling involves borrowing shares and then selling them at current market prices. In the successful version of the strategy, the shares are purchased at a lower price at some time in the future. The investor then returns the shares to the lender, and keeps the profit made on the sell/buy transaction.
Another way to gauge the sentiment on Monster Beverage is to look at the percentage of institutions that are invested in the stock. In this case, 68.1% of the shares are held by pension, mutual, and hedge funds, which shows that these institutions probably have strong confidence in the stock.
If institutions are invested in a particular stock, it shows in most cases that they have performed quality research and concluded that it is a good investment. In some cases, however, increases in institutional ownership could be a sign of a takeover attempt or proxy fight, which can actually injure share prices. Also, institutions are not infallible, and can certainly make miscalculations -- often with spectacular results.
To sum up, Monster Beverage is probably the subject of positive market sentiment because of an analyst consensus of some upside potential, a buy rating, a very low short interest, and an average number of institutional investors. At Market Inference, we believe that any investment decision should be preceded by an in-depth analysis of the company's fundamental values and a comparison with similar stocks.
Here's a snapshot of some important facts to keep in mind about MNST:
The stock has trailing 12 month earnings per share (EPS) of $1.35
Monster Beverage has a trailing 12 month Price to Earnings (P/E) ratio of 37.1 compared to the S&P 500 average of 15.97
The company has a Price to Book (P/B) ratio of 6.69 in contrast to the S&P 500's average ratio of 2.95
Monster Beverage is a Consumer Staples company, and the sector average P/E and P/B ratios are 24.36 and 4.29 respectively