Thinking of Selling MNST After Today's Rally? Consider This First.

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
The above analysis is intended for educational purposes only and was performed on the basis of publicly available data. It is not to be construed as a recommendation to buy or sell any security. Any buy, sell, or other recommendations mentioned in the article are direct quotations of consensus recommendations from the analysts covering the stock, and do not represent the opinions of Market Inference or its writers. Past performance, accounting data, and inferences about market position and corporate valuation are not reliable indicators of future price movements. Market Inference does not provide financial advice. Investors should conduct their own review and analysis of any company of interest before making an investment decision.