Related content in my book
I introduced the company Monster Beverage (Monster Beverage, ticker: MNST) in my book, and I will not repeat the content in the book:
- In section 3-5 of the book “The Rules of 10 Baggers“, pages 158: This entire subsection is an introduction to growing food companies.
Company Profile
Monster Beverages is an American energy drink company that produces energy drinks including Monster Energy, Relentless and Burn. The predecessor of Monster Beverage, Hansen’s, was founded in 1935 by Hubert Hansen and his three sons; changed to its current name on January 5, 2012.
Monster Beverages primarily sold lemonade, fruit juice products and energy drinks in the early 20th century. However, in the 1980s, the company fell into operational difficulties. In 1990, the company declared bankruptcy!
In 2002, the company made a revolutionary decision to double the size of the 8.3-ounce energy drink to 16 ounces in one fell swoop; this change changed the company’s future destiny.
Another change in Monster Beverage’s fate was the company’s decision to move away from a traditional direct-store sales model to a wholesale model of mass channel distribution.
Coca-Cola and Monster Beverage
Coca-Cola acquires Hansen Juice
In June 2015, Coca-Cola (ticker: KO) acquired Hansen’s juice products and sodas, Hubert’s Lemonade, Blue Sky soda, Peace Tea and other non-energy drink brands.
Coca-Cola is the largest shareholder
The Coca-Cola Company bought a 16.7% stake in Monster Beverage for $2.15 billion in 2015. Thanks to a share buyback by Monster Beverage, that stake has grown to 19.3%, making it the largest single shareholder.
Why is Coca-Cola investing in Monster Beverage?
The main factor that determines the success of a beverage company is the distribution network system, not the ingredients or flavor of the beverage. This is a key point of operation that all companies engaged in the beverage business know. It is well known that Coca-Cola has the most powerful and dense beverage distribution and sales network system in the world; I also mentioned this in another blog article “Pros and cons of investing in Coca-Cola“. This is also one of the main factors why Monster Beverage let Coca-Cola become a shareholder and take over the distribution network of Monster Beverage.
Another major reason is that Coca-Cola is a beverage-focused business, unlike rival PepsiCo (ticker: PEP), which is sufficiently diversified that beverages are now only part of PepsiCo’s business. As the world’s largest listed beverage company, Coca-Cola is working hard to bring well-known beverage companies with investment value in the market into the company’s banner to expand its influence and increase the company’s revenue.
Main business and market share
Business performance
Since 2001, the company’s revenue ratio has never been lower than 9%. According to statistics from Statista, in the fourth quarter of 2019, an average of more than 4.6 million cans of Monster Beverage energy drinks were sold in the United States every day.
Market share
In May 2012, it accounted for 35% of the U.S. market share, second only to Red Bull in the U.S. energy drink market. As of the latest statistics in March 2019, in the global energy drink market worth USD 86 billion, the market share of Red Bull in the energy drink market fell by less than 1 percentage point compared with the same period last year, falling to 38.2%; the market share of Monster Beverage decreased by 3.5 percentage points to 35.4%. Meanwhile, Vital Pharma’s market share jumped more than 1 percentage point to 8.3%.
Sports sponsorship
Tiger Woods, the famous golf player sponsored by Monster Beverage for the first time. It also actively sponsors well-known sports events such as UFC and NASCAR, and the company will continue to sponsor individual drivers in the future.
M&A and possibility of being merged
Mergers and acquisitions
In January 2022, the company acquired craft beer company CANarchy Craft Brewery Collective for $330 million.
Possible merger
According to reports, in February 2022, Monster Beverage and Constellation Brands (ticker: STZ), a major listed beer company in the United States, are considering a merger, and the combined market value will exceed 90 billion US dollars.
Competitors
Monster Beverage is currently facing strong headwinds, with the stock price down about 18% since 2023, mainly because new competitors are entering the $50 billion energy drink market; Amazon.com has begun selling its own brand of energy Beverages, Coca-Cola also launched Coca-Cola Energy energy drinks in Europe.
Monster’s bigger rival might be Vital Pharma’s Bang energy drink.
Like Keuring Dr. Peper (ticker: KDP), it would make more sense for Keuring Dr. Peper to acquire MNST since the two are peers in the energy drink world.
Wall Street analysts have long speculated that Coca-Cola would buy Monster Beverage (currently worth nearly $30 billion).
Stock performance
Amazing performance since listing
Since 2000, investing in Monster Beverages has returned over 110,000% in the 21st century alone! Since going public, the company is up 69,900% through the end of April 2023. This performance has left stocks such as Amazon and Apple in the dust.
Current share price valuation
Monster Beverage’s stock price has averaged a price-to-earnings ratio of 38 over the past 12 months, giving investors a return on invested capital (ROIC) of 25%.
Business outlook
Key estimates for Monster Beverage’s operating outlook for the next 4 years are:
- 10% revenue growth
- 10% growth in free cash flow
- EPS growth of 16-17%
Negative factors
For investors, it is necessary to understand the following negative factors:
- Gross margin down a few percentage points in 2022
- Energy drinks are an increasingly competitive industry
However, giving investors a stock return of 10-15% per annum should be an achievable goal for investors.
Related articles
- “Monster Beverage’s monster level stock returns“
- “Coca-Cola has been inferior to Pepsi in and even return rate is negative in past 10 years!“
- “Pros and cons of investing in Coca-Cola“
- “How does Domino’s make money? its stock reward beat down Alphabet“
- “How does ubiquitous Yum! Brands make money?“
- “How does Starbucks make money? and the current predicament“
- “Discover the possibility of super growth stocks in the civilian production industry”
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