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.
Monster Beverage Has Elevated P/B and P/E Ratios:
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 37.0 and a P/B ratio of 7.23.
Monster Beverage's PEG ratio is 1.57, 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.
Exceptional EPS Growth Obtained Primarily Through Share Buybacks:
| 2018 | 2019 | 2020 | 2021 | 2022 | 2023 | |
|---|---|---|---|---|---|---|
| Revenue (MM) | $3,807 | $4,201 | $4,599 | $5,541 | $6,311 | $6,923 |
| Gross Margins | 60% | 60% | 59% | 56% | 50% | 53% |
| Operating Margins | 34% | 34% | 36% | 33% | 25% | 28% |
| Net Margins | 26% | 26% | 31% | 25% | 19% | 23% |
| Net Income (MM) | $993 | $1,108 | $1,410 | $1,377 | $1,192 | $1,566 |
| Net Interest Expense (MM) | $10 | $13 | -$7 | n/a | -$13 | $98 |
| Depreciation & Amort. (MM) | $57 | $61 | n/a | $50 | $61 | $66 |
| Earnings Per Share | $0.88 | $1.01 | $1.32 | $1.29 | $2.23 | $3.1 |
| Diluted Shares (MM) | 1,129 | 1,093 | 1,070 | 1,071 | 533 | 505 |
| Free Cash Flow (MM) | $1,100 | $1,012 | $1,315 | $1,112 | $699 | $1,419 |
| Capital Expenditures (MM) | $62 | $102 | $49 | $44 | $189 | $163 |
| Net Current Assets (MM) | n/a | n/a | n/a | n/a | n/a | n/a |
| Net Debt / EBITDA | -0.36 | -0.46 | nan | -0.63 | -0.67 | -0.73 |
Monster Beverage has growing revenues and increasing reinvestment in the business, low leverage, and decent operating margins with a stable trend. However, the firm suffers from slimmer gross margins than its peers and exceptional EPS growth obtained primarily through share buybacks. Finally, we note that Monster Beverage has irregular cash flows.
