Tumbling to a price of $49.22 during today's afternoon trading session, shares of Monster Beverage are now -20.79% 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 rosy outlook, since Monster Beverage has a short interest of only 1.7%. This represents the percentage of the share float that is being shorted, and each short position stands for an investor's expectation that the price of the stock will go down 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.
One way to get an idea of the market sentiment on a stock is to check its rate of institutional ownership. In the case of Monster Beverage, institutional investors own 68.1% of the shares, which indicates they have a very high stake in the company. What does this really tell us?
Institutional investors such as hedge funds, investment firms, and wealth managers devote significant resources to identifying good investments. If they have decided to invest in MNST, it probably means they believe it is a solid investment choice.
But it could also mean they are buying up shares in an effort to acquire the company or to get seats on the board of directors. Also bear in mind that institutions are fallible (just maybe not quite as fallible as the average retail investor), so they may simply be wrong when they think they've found a good stock.
To sum up, Monster Beverage is probably the subject of positive market sentiment because of an analyst consensus of strong 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 $1.3
Monster Beverage has a trailing 12 month Price to Earnings (P/E) ratio of 37.9 compared to the S&P 500 average of 15.97
The company has a Price to Book (P/B) ratio of 6.57 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