Are Rivals Set To Dislodge Monster Beverage?

The energy drink market had $23 billion in sales in 2023 and shifting consumer preferences are expected to keep it growing in the years ahead. However, energy drink buyers value innovation and are continually looking for new products that offer intriguing benefits.

The consistent demand for new offerings has been a concern for investors in the more established energy drink makers like Monster Beverage (NASDAQ: MNST). Though the company has continued to notch double-digit revenue growth in every quarter over the past year, it has continually fallen short of revenue expectations.

Those concerns drove investors to sell shares of MNST and so, in the past 12 months, the stock is down 7.9%. Furthermore, fears have grown that the company’s economic moat is shrinking amid heavy competition is stealing market share.

But Monster has one of the most well-established brands in the business, and it has demonstrated that it can consistently grow revenues.

The company has continued to offer new products, including compelling entries into the nascent alcoholic energy drink market. Monster also made a recent acquisition that should strengthen the company’s expansive portfolio.

So will Monster Beverage rekindle the formula that once fueled its soaring share price?

Monster Continues To Miss Earnings Estimates

After management reported earnings for the 1st quarter of 2024, the stock momentarily popped. But in the month since the earnings release, MNST share price has fallen by around 4%. That fall is in spite of record net sales; the company had revenue of $1.9 billion in Q1, an 11.8% year-over-year increase.

However, net sales were 0.22% lower than analysts expected, a common theme for Monster, which has narrowly missed estimates in each of the past four quarters.

Monster’s net income increased by 11.2% year-over-year to $442 million. Diluted earnings per share was $0.42, but that underperformed EPS expectations by 3.38%.

Despite the earnings miss, the company had significant growth across all segments. Its line of Monster energy drinks are still the company’s bread and butter, and the segment brought in $1.73 billion in the first quarter, a 10.7% increase over the same quarter of 2023.

Monster also has a long-running relationship with Coca-Cola. Coke took a 16.7% equity stake in Monster in 2014, and the companies have fueled their synergy ever since. Monster’s Strategic Brands segment consists of the Predator and Fury energy drinks it acquired from Coke, and that segment grew by 25.6% in Q1.

One of the most-watched segments in the first quarter was the company’s alcoholic energy drink segment, which includes The Beast Unleashed and Nasty Beast Hard Tea, among other beverages. Net sales for the segment increased by 21.1% year-over-year to to $56.1 million.

The company’s final segment, which includes products from Monster subsidiary American Fruits and Flavors, brought in $5.5 million in net sales, a 19.9% improvement over the same quarter of 2023.

Will Monster Beverage Stock Go Back Up?

All in all, it was a strong quarter for Monster, but even more promising was the company’s announcement that it will buy back $3 billion worth of its common stock. That news comes after Monster bought back 1.8 million of its shares, valued at $97.2 million, in Q1.

Despite Monster’s revenue reliability, there are valid competition concerns. Long-time competitor Red Bull is privately held, but it is still the leading energy drink brand in the U.S. Monster is in second place, followed by upstart Celsius Holdings.

Celsius has been growing rapidly and stealing market share from Monster over the past few years. The upstart had a 37% year-over-year increase in revenue in the 1st quarter following an over 100% revenue jump in the 4th quarter of 2023. Celsius shares are now up 61% over the past 12 months.

The growing competition should be concerning for Monster investors, but the company isn’t willing to rest on its laurels. In mid-2023, Monster completed the acquisition of Bang energy drinks. The $362 million purchase gives Monster access to the Bang Energy line of drinks and a production facility in Arizona.

The company has also delivered new products and expanded its footprint for its alcoholic energy offerings. Those beverages are now available in 49 states. Still, investors are looking for more significant revenue growth before they buy in.

Will Monster Beverage Stock Recover?

Analysts expect that Monster Beverage stock will recover to $62.68, a 19.5% rise from present levels.

While main street investors might be hesitant, Wall Street analysts are largely bullish. Out of 28 analysts who have weighed in on the stock, 17 call it a buy.

4 analysts assess that the stock is set to outperform the market, and the highest forecast has MNST jumping 33.5% to $70 over the next 12 months.

There are 10 hold ratings and 1 recommendation to sell the stock. The lowest price target is $46 per share, which would be a 12.3% drop over the next 12 months.

Monster’s P/E Suggests Overvaluation

The analysts mostly believe the stock has room to rise, but Monster’s price-to-earnings multiple of around 33x is concerning. Beverage giants Coca-Cola and Pepsico have P/E ratios closer to 25x.

Monster has a price-to-sales ratio of 7.5x, which is higher than that of both Coke and Pepsi. Compared to Celsius Holdings’ P/S of 13.5, Monster may look a bit undervalued but the former is growing faster and so the higher multiple is largely justified.

Though the company’s share buyback plan is a good sign, the company doesn’t currently offer a dividend.

Is Monster Beverage a Buy, Sell or Hold?

Monster is one of the most recognizable brands in the energy drink industry, and the company has continued to exhibit revenue and profit growth. It remains firmly entrenched as a leader in a booming industry that will continue to grow.

Unfortunately, there is tough competition for market share in the energy drink industry, and consumers are always on the lookout for something new. Though Monster has made some headway with its alcoholic beverages, wide scale adoption is far off.

The company’s long-time partner, Coca-Cola, has been an investor favorite because of its a strong economic moat and a dividend. Monster, unfortunately, doesn’t have either. Until the company can prove it can defend its market share, it’s hard to get too enthusiastic, despite extraordinary historical gains.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.