Shares of Monster Beverage (MNST) jumped 1.1 % during today's afternoon session, bringing their 52 week performance to -44.0%. The stock seems to be overvalued in terms of traditional metrics, but in this day in age, we believe that a complete stock analysis should also take into account the company's mixed growth prospects and positive market sentiment.
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 large-cap Consumer Staples company is based in Corona, United States and has 4,607 full time employees.
MNST Has a Higher P/E Ratio Than the Sector Average
Compared to the Consumer Staples sector's average of 24.36, Monster Beverage has a trailing twelve month price to earnings (P/E) ratio of 37.4 and an expected P/E ratio of 28.2. The P/E ratios are calculated by dividing the company's share price by its trailing 12 month of $1.35 or forward earnings per share of $1.79.
Earnings represent the net profits left over after subtracting costs of goods sold, taxes, and operating costs from the company's recorded sales revenue. One way of looking at the P/E ratio is that it represents how much investors are willing to pay for every dollar's worth of the company's earnings. Since Monster Beverage's P/E ratio is higher than its sector average of 24.36, we can deduce that the market is overvaluing the company's earnings.
Monster Beverage Is Fairly Valued in Terms of Expected Growth
Another factor pointing to Monster Beverage's value is its PEG ratio of 1.54. This is the stock's price to earnings ratio divided by its estimated earnings growth rate. If the resulting ratio is near or lower than 1 -- but higher than 0 -- its indicates that the company is faitly valued in terms of expected growth.
MNST Has an Alarming P/B Ratio
The price to book (P/B) ratio of a company is a comparison of the company's market capitalization versus its net asset, or book value. A ratio lower than 1 tells you that the equity market is undervaluing the book value of the company's assets, and ratios higher than 1 tell you that the equity markets are overvaluing the company in terms of its assets.
Of course, a company is worth much more than its assets alone, so the focus on P/B ratio is mainly to enable investors to single out undervalued securities that offer a margin of safety. Since Monster Beverage's P/B ratio of 6.75 is higher than its sector average of 4.29, such a margin of safety does not exist for the stock.
MNST's Weak Cash Flow Generation Is Troubling
The table below shows that Monster Beverage is not generating enough cash. A well run company will generally have cash flows that reflect the strength of its underlying business, and in Monster Beverage's case, free cash flow is growing at an average rate of 0.0% with a coefficient of variability of 21464780238.9%. We can also see that cash flows from operations are evolving at a 0.0% rate, versus 0.0%:
| Date Reported | Cash Flow from Operations ($ k) | Capital expenditures ($ k) | Free Cash Flow ($ k) | YoY Growth (%) |
|---|---|---|---|---|
| 2023-03-01 | 887,699 | -187,413 | 1,075,112 | -10.28 |
| 2022-02-28 | 1,155,741 | -42,540 | 1,198,281 | -15.13 |
| 2021-03-01 | 1,364,163 | -47,729 | 1,411,892 | 15.45 |
| 2020-02-28 | 1,113,762 | -109,159 | 1,222,921 | -1.72 |
| 2019-02-28 | 1,161,881 | -82,444 | 1,244,325 | 15.15 |
| 2018-03-01 | 987,731 | -92,911 | 1,080,642 |
Monster Beverage's Margins Are Strong
If you buy a stock for the long run, you want the underlying business model to be profitable. Gross margins tell you how much profit the company generates compared to the cost of revenue, which is the cost directly related to providing Monster Beverage's goods and services. Operating margins, on the other hand, tell you how much of these profits the company keeps after you take overhead into account.
Monster Beverage's Gross Margins
| Date Reported | Revenue ($ k) | Cost of Revenue ($ k) | Gross Margins (%) | YoY Growth (%) |
|---|---|---|---|---|
| 2023-03-01 | 6,311,050 | -3,136,483 | 50 | -10.71 |
| 2022-02-28 | 5,541,352 | -2,432,839 | 56 | -5.08 |
| 2021-03-01 | 4,598,638 | -1,874,758 | 59 | -1.67 |
| 2020-02-28 | 4,200,819 | -1,682,234 | 60 | 0.0 |
| 2019-02-28 | 3,807,183 | -1,511,808 | 60 | -4.76 |
| 2018-03-01 | 3,369,045 | -1,231,355 | 63 |
Monster Beverage's Operating Margins
| Date Reported | Total Revenue ($ k) | Operating Expenses ($ k) | Operating Margins (%) | YoY Growth (%) |
|---|---|---|---|---|
| 2023-03-01 | 6,311,050 | -1,589,846 | 25 | -21.88 |
| 2022-02-28 | 5,541,352 | -1,311,046 | 32 | -11.11 |
| 2021-03-01 | 4,598,638 | -1,090,727 | 36 | 9.09 |
| 2020-02-28 | 4,200,819 | -1,115,646 | 33 | -2.94 |
| 2019-02-28 | 3,807,183 | -1,011,756 | 34 | -5.56 |
| 2018-03-01 | 3,369,045 | -938,903 | 36 |
Monster Beverage's cost of revenue is growing at a rate of -0.0% in contrast to -17.6% for operating expenses. Sales revenues, on the other hand, have experienced a 0.0% growth rate. As a result, the average gross margins growth is 0.1 and the average operating margins growth rate is -5.8, with coefficients of variability of 7.8% and 12.5% respectively.
Monster Beverage Benefits From Positive Market Signals
The market sentiment regarding Monster Beverage is overwhelmingly positive. The stock has an average rating of buy and target prices ranging from $72.0 to $51.5. MNST is trading -16.78% away from its target price of $60.73. 1.9% of the company's shares are tied to short positions, and 68.1% of the shares are held by institutional investors.
| Date Reported | Holder | Percentage | Shares | Value |
|---|---|---|---|---|
| 2023-06-30 | Vanguard Group Inc | 6% | 63,491,955 | $3,208,883,463 |
| 2023-06-30 | Blackrock Inc. | 5% | 53,324,053 | $2,694,997,687 |
| 2023-06-30 | FMR, LLC | 4% | 39,453,041 | $1,993,956,728 |
| 2023-06-30 | Alliancebernstein L.P. | 4% | 37,174,265 | $1,878,787,387 |
| 2023-06-30 | State Street Corporation | 3% | 34,684,521 | $1,752,955,723 |
| 2023-06-30 | JP Morgan Chase & Company | 3% | 29,760,640 | $1,504,102,772 |
| 2023-06-30 | Loomis Sayles & Company, LP | 3% | 27,203,495 | $1,374,864,662 |
| 2023-06-30 | Capital World Investors | 2% | 21,587,295 | $1,091,021,909 |
| 2023-06-30 | Nuveen Asset Management, LLC | 2% | 18,321,200 | $925,953,464 |
| 2023-06-30 | Price (T.Rowe) Associates Inc | 2% | 17,638,324 | $891,440,911 |
