Should you buy Monster Beverage stock?
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Monster Beverage stock analysis MNST.
Monster has higher valuation ratios than Anheuser-Busch InBev, Heineken, and even PepsiCo and The Coca-Cola Company.
The current FCF yield (FCF / EV) is 1.3%. Of course, this is distorted as the last year’s performance was much lower than the years before. However, even if we take a year when the margins were much higher and imply 2x higher FCF, it still doesn’t justify the current valuation.
Based on the analysts’ estimates, the growth ahead is expected to be slightly above 10% per year, implying that the growth isn’t expected to slow down.
The business itself is great, and the management has done outstanding job, but there is no way to justify the current market cap. The investors seem to continue seeing Monster as a defensive company that will continue to do well in good and bad times, but that might not be completely true, especially based on the performance during 2022.
#stocks #investing #mnststock
Monster Beverage stock analysis MNST.
Monster has higher valuation ratios than Anheuser-Busch InBev, Heineken, and even PepsiCo and The Coca-Cola Company.
The current FCF yield (FCF / EV) is 1.3%. Of course, this is distorted as the last year’s performance was much lower than the years before. However, even if we take a year when the margins were much higher and imply 2x higher FCF, it still doesn’t justify the current valuation.
Based on the analysts’ estimates, the growth ahead is expected to be slightly above 10% per year, implying that the growth isn’t expected to slow down.
The business itself is great, and the management has done outstanding job, but there is no way to justify the current market cap. The investors seem to continue seeing Monster as a defensive company that will continue to do well in good and bad times, but that might not be completely true, especially based on the performance during 2022.
#stocks #investing #mnststock
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NewsTranscript
00:00 Should you buy Monster Beverage stock?
00:02 Monster Beverage has a current market cap of $54 billion.
00:06 With $1.4 billion of cash and little debt, the enterprise value is $52.5 billion.
00:12 Revenue over the last 12 months is $6.3 billion, net income is $1.2 billion and free cash flow
00:17 is $700 million.
00:19 That means Monster Beverage stock is valued at 8 times revenue, 45 times earnings or 75
00:24 times free cash flow.
00:26 These are expensive multiples and that's because Monster Beverage has been one of the most
00:30 impressive stocks of the last 20 years.
00:33 Its revenue compounded at over 10% in the past decade, it's taken 40% of the energy
00:38 drink market creating its own category and it did all this pretty much without any debt
00:43 other than capital leases.
00:45 Monster's gross profit margin for the last full year was 50%, that's a decrease from
00:50 56% back in 2021 and 59% back in 2020 and historically there were years when it was
00:57 even above 60%.
00:59 Although high gross margins are a good indicator that a company has pricing power, this recent
01:03 decline is a bit worrying.
01:05 Especially since 2022 was also a year with high inflation and the company saw a significant
01:10 increase in its operating expenses as well.
01:14 All of this has reduced the operating margin from 35.5% in 2020 to 32.4% in 2021 to 25.1%
01:24 in 2022.
01:25 However the market doesn't seem concerned as Monster's share price keeps increasing,
01:30 it's up more than 30% over the last year and more than 70% over the last 5 years beating
01:35 the returns of the S&P 500.
01:38 Based on today's market cap though it's difficult to make an argument that Monster
01:41 is fairly valued.
01:43 At 45 times earnings that means an investor would need to wait 45 years to get her money
01:47 back assuming earnings remain flat.
01:50 That's expensive even for a quality business like Monster.
01:53 The company remains significantly more expensive than rivals such as Coca-Cola, Pepsi and Bud
01:59 and health trends may even put a dent in Monster's long term prospects.
02:04 Over the past 10 years Monster Beverage has grown earnings at a rate of 13% annually.
02:09 If we assume that rate continues for the next 10 years and then Monster stock trades at
02:13 35 times those earnings the company would be worth around $141 billion in 10 years time
02:19 which would give an investor a return of around 10.4% per annum.
02:23 So the big problem here is not necessarily earnings growth, it's that the earnings
02:27 multiple has very little room to expand upwards.
02:30 That means there's very little margin of safety in Monster Beverage stock and that's
02:34 why I give it a neutral rating.
02:36 But these are my personal opinions not financial advice and I've got no position in Monster
02:41 Beverage stock.
02:42 For more detailed investing ideas make sure to visit our website overlookedalpha.com