Monster Beverage: Recent Correction Provides Buy Opportunity

| About: Monster Beverage (MNST)

The stock price of Monster Beverage (NASDAQ:MNST) has been an impressive story in recent years as the stock outperformed the S&P 500 overwhelmingly in both 2010 and 2011. The following table compares the company's stock performance with respect to S&P 500 since 2010 and 2011.

Monster Beverage


2010 Gain



2011 Gain



However, after reaching an all-time high close price of $78.72 on June 18th, 2012, the stock has corrected sharply in the recent months. Going forward, Monster shares are likely to be pressured near term given concerns regarding slowing sales growth and potential for further headline risk around the NY State AG inquiry and Senator Durbin's discussion with the FDA. However, I think any further stock weakness will present an attractive buying opportunity as most of the troubles in front of the company are already reflected in the share price.

From a valuation point of view, Monster is attractively priced relative to the company's growth potential. Despite the growing concerns over slowing sales growth, Monster's expected EPS growth rate is significantly higher than its peer group consisting of competitors such as The Coca-Cola Company (NYSE:KO) and PepsiCo (NYSE:PEP). Let's have a look at these companies' expected growth rate and valuation multiples like forward P/E and PEG ratio.





Forward P/E




Next Year Growth




Next 5 Year Growth (per annum)




PEG Ratio (5 Year Expected)




Source: Yahoo Finance

We can see that Monster's next year expected growth of 23% is substantially better than Coca-Cola's 9.50% and PepsiCo's 8.60%. Accounting for Monster's earnings growth prospects, the stock is trading at a PEG ratio of 1.91 and looks cheap with respect to both Coca-Cola as well as PepsiCo. PepsiCo is looking particularly expensive with a PEG ratio of 3.69. PepsiCo's EPS declined more than 3% in its recent quarter and the Wall Street thinks there is more trouble ahead for the company (estimating an EPS decline of 5.2% in the next quarter). Thus, I don't see any reason to own it over Monster.

The management at Monster has a real stake in how the company performs as large proportions of company's shares are held by insiders. The following table summarizes insider ownership in Monster, Coca-Cola and PepsiCo.





Insider Ownership




Although we can't expect such high proportions of insider ownerships in large cap companies like Coca-Cola and PepsiCo, it is still a very bullish sign that insiders have maintained healthy levels of ownership in Monster despite the recent pressures on the stock price. Large insider ownership is usually an indication that shareholders should receive a good return on their stocks.

I believe Monster's long term growth thesis remains intact as it is a relatively young company that maintains an entrepreneurial mindset; driving growth through new product introductions and considerable R&D investment. The company has a huge runway for international growth as Red Bull's 2011 non-U.S. sales were 15 times Monster's international sales and are still growing double-digits more than 20 years after the product's introduction. Thus, I expect the company to achieve robust growth through 2015, resulting from continued U.S. share gains, innovation, and international expansion.

Moreover, the company has a strong balance sheet with plenty of cash and no long-term debt or pension liabilities. While the shares look attractively priced on a PEG basis, being a little patient would be wise as the shares are likely to be pressured near term.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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