Monster Beverage: Damaged Goods

| About: Monster Beverage (MNST)
This article is now exclusive for PRO subscribers.

Monster Beverage (NASDAQ:MNST) is getting killed twice.

First, the stock got clobbered yesterday on an earnings shortfall courtesy of a less than stellar international rollout in Japan, South Korea, and Brazil. Monster's finding out that going global isn't so easy. Japanese distributors returned Monster's product over quality issues. South Korea held up their entry over a squabble over ingredients. Brazil was a weaker market than expected. The resultant 2 cent miss sent shares down 9%.

Today, Monster got whacked due to an SEC disclosure that came out of nowhere (as in nowhere in the press release or conference call) sending the stock down another 11%:

State Attorney General Inquiry - In July 2012, the Company received a subpoena from a state attorney general in connection with an investigation concerning the Company's advertising, marketing, promotion, ingredients, usage and sale of its Monster Energy® brand of energy drinks. As the investigation is in an early stage, it is unknown what, if any, action the state attorney general may take against the Company, the relief which may be sought in the event of any such proceeding or whether such proceeding could have a material adverse effect on the Company's business, financial condition or results of operations.

Monster had ample opportunity to discuss the subpoena in conference. Instead, the company left it for investors themselves to unearth this. Monster didn't need to get into the nitty-gritty of the potential legal dispute. However, a few simple details would have been nice -the state involved, whether the action involved other companies, was there earlier notice. The last words (in bold) are particularly concerning. No wonder investors are running for the exits.

Ironically, during Monster's conference call, analysts were anxious to find out what the company was going to do with its cash. By the look of the A.G.'s investigation, Monster may be setting the money aside for a very rainy day.

Monster has been on a remarkable 2-year tear, rising almost non-stop. The company had been beloved by more than just the market. According to the Wall Street Journal, Coca-Cola (NYSE:KO) was close to acquiring the company but walked due to Monster's stratospheric valuation. That's been remedied: The stock is down 21% over the last 3 days. However, investors (and Coca Cola) are likely to see even better price entry points. Monster has a lot to explain. The stock is unlikely to stop falling without more disclosure. For now, Monster is damaged goods.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Disclaimer: The opinions in this document are for informational and educational purposes only and should not be construed as a recommendation to buy or sell the stocks mentioned. Past performance of the companies discussed may not continue and the companies may not achieve the earnings growth as predicted. The information in this document is believed to be accurate, but under no circumstances should a person act upon the information contained within. We do not recommend that anyone act upon any investment information without first consulting an investment advisor as to the suitability of such investments for his specific situation.