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Companies that consistently give strong financial performances often see steady share price appreciation, and that can eventually lead to a stock split. In that context, stock splits can help investors identify companies with sound fundamentals and a proven ability to create value for shareholders.
Hansen Natural is a wonderful example of this. In 2002, the juice and soda company switched to energy drinks and sold them under the Monster brand. In hindsight, this decision was a stroke of genius. Since then, the company has replaced its name to Monster Beverage (MNST 0. 72%), and its expanding entry into the energy drink business has led to such significant percentage value appreciation that the company has split its percentages five times in the last 20 years, as detailed below:
Shares of Hansen Natural/Monster Beverage soared 65,610% over the last two decades, making it the best-performing stock in the S&P 500 (SNPINDEX: ^GSPC) during that time. For context, $5,000 invested in the company in December 2003 would now be worth nearly $3.3 million.
Even so, Monster Beverage is still a profitable investment today and it’s a wonderful time to buy some stocks.
Here’s what investors should know about Monster Beverage.
Monster Beverage generates revenue primarily from energy drinks, adding premium brands like Monster Energy and Reign and more affordable products like Predator and Fury. But the company also makes money from alcoholic beverages, basically craft beers and hard soft drinks, acquired through the acquisition of CANarchy in February 2022. However, Monster has recently expanded into flavored malt beverages (The Beast Unleashed) and will launch a line of hard spirits teas in 2024 (Nasty Beast Hard Tea).
Monster has two vital competitive advantages. First of all, the company has built immense authority on its logo through effective marketing and maintained it through natural innovation. The company added more than a dozen products to its energy drink portfolio in the third quarter alone. Second, an exclusive partnership with Coca-Cola positions Monster as the only energy drink logo with the world’s largest beverage distribution system.
These benefits have helped Monster occupy a leadership position in many geographies. Red Bull is the most popular energy drink logo in the U. S. Monster Beverage Corporation is the market leader in the U. S. when all logos are included. The U. S. (the world’s largest economy). The company is also a market leader in energy drink sales in Japan (the world’s third-largest economy), South Korea, and parts of Latin America.
Monster reported solid financial results in the third quarter. Revenue increased 14% to $1.9 billion despite a 180-basis-point headwind from unfavorable foreign exchange rates. That top-line figure reflects sales increases of 13% and 58% in energy drinks and alcoholic beverages, respectively.
Growth was particularly pronounced outside of North America. Monster continued to gain market share across Europe, including the United Kingdom, France, and Germany (the fourth-largest economy in the world). And management is optimistic about future growth prospects in China (the second-largest economy in the world).
Monster also reported a GAAP net revenue source of $0. 43 consistent with diluted percentage, a 41% increase over the prior year. This earnings momentum can be attributed to gross margin expansion driven through pricing power, as well as percentage-consistent collection and buyback efforts. Similar effects can be expected in the future.
Global energy drink sales are expected to grow 8. 3% annually through 2030. But Monster could grow faster for two reasons. First, the company has traditionally outperformed the industry average in energy drink sales, as evidenced by its dominant market share, and its strong logo is expected to build on this momentum in the coming years.
Second, its alcoholic beverages business is growing much more quickly than its energy drinks business, and that trend should continue as the company leans into new flavored malt beverages and hard tea products. Monster expects to achieve national distribution with The Beast Unleashed by the end of 2023, and management is targeting similar coverage with Nasty Beast Hard Tea in the first half of 2024.
Taken together, Monster has a strong chance of seeing annual earnings growth in the single digits to double digits through the end of the decade. This makes its current valuation of 8. 6 times sales seem reasonable, especially when the three-year average is nine times higher. sales. To that end, investors are comfortable buying a small position in this fractional expansion inventory today.
Trevor Jennewine has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Monster Beverage. The Motley Fool recommends the following options: long January 2024 $47.50 calls on Coca-Cola. The Motley Fool has a disclosure policy.
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