Comparing both companies' numbers side by side tells a surprising story of which company is the strongest. Coca-Cola (KO, Financial), with a $187.66 billion market cap, generates $10.57 per share in sales, while Monster Beverage (MNST, Financial), with a $31.73 billion market cap, generates $12.15 in sales for every outstanding share. How does a company only a fraction of the size of Coke generate more in sales?
In the third quarter, Coca-Cola had more than $11.42 billion in sales while Monster had nearly $756.62 million in its third quarter. With both of these companies in the same industry, which is the better buy?
In 2005 Coke had an EPS of $1.02 and currently is earning $1.57 a share, growing at 4.41% compounded annually. Monster that year had an EPS of 32 cents; it is now earning $2.17 a share, a 21.10% growth rate compounded annually, which is significantly higher than Coke's growth rate.
On the cash flow level, Monster narrowly edges out Coke with $2.89 per share in cash flow versus $2.44 per share. Monster also has Coke beat when it comes to current assets per share; Monster has $6.60 per share in current assets while Coke has a negative net asset value of -$5.07. Coke has an earnings yield of 3.64%; Monster only has an earnings yield of 1.38%. Monster also lags behind in terms of PE ratio at 54.34, compared to Coke at 27.52.
On the net income level over the last 10 years, Coke has grown its net income 3.08% compounded annually, growing from $5.08 billion in 2005 to $6.88 billion currently. Monster has seen its net income grow 144.69% in the same 10 years, from $62.80 million in 2005 to more than $483 million currently. Looking at how the two companies are growing their book values, we see Monster has grown its book value from $1.41 in 2005 to $22.96 currently, a 32.18% compounded annual increase; Coke has seen its book value shrink 1.96% compounded annually.
According to Graham and Dodd's "Security Analysis," asset value and earning power are unrelated. While Coke generates significantly more sales and revenue than Monster, Coke is also at a disadvantage in this comparison because of how expensive its stock is compared to Coke. Currently Monster has a book value of $22.96 and a P/B ratio of 6.81 while Coke has a book value of just $6.00 with a P/B ratio of 7.17. But Coke falls short with its 15.24% net profit margin. Monster has a net margin of 19.88%.
Looking at the economics of the two companies we see that Coca-Cola is currently earning a 15.83% return on capital while Monster is earning a 37.25% return on its capital. Monster also has Coke beat in regard to margins, with a gross margin of 61.52% and an operating margin of 38.52%, compared to Coke's 59.95% gross margin and 20.82% operating margin.
Monster has a shareholders' equity of $7.47 per share and net earnings of $2.38 per share while Coke has shareholders' equity of $6.97 per share and net income of $1.63 per share. From a shareholder's position, each share of Monster that you own has a certificate attached to it that pays $2.38; Coca-Cola carries $1.63. This means that each Monster share owned is yielding a 31.82% return on shareholders' equity ($2.38 / $7.47 = 31.82%), of which 100% is retained by the company. Each share of Coke is yielding a 23.4% return on shareholders' equity ($1.63 / $6.97 = 23.4%) and is retaining 80% of its earnings, paying 20% out as a dividend.
Debt can also make or break a company. Monster is currently debt free while Coke has a concerning debt-to-equity ratio of 1.77. Can Coke handle this much debt with its slow revenue and earnings growth? On its balance sheet, Monster has $1.29 billion in goodwill; Coke has $11.35 billion in goodwill. In September, Monster announced a $500 million share repurchase program while in January Coke announced a $1 billion share repurchase program. Coca-Cola is obviously more encouraging and rewarding for its shareholders with such a large buyback.
Coca-Cola's CEO Muhtar Kent has been with the company as CEO for six years; under his leadership, revenue has increased from 3.84%. Under Kent the stock price has grown 0.11% compounded annually the past six years. Monster CEO Rodney Sacks has been with the company since its founding in 1990; the stock price has grown from $1.19 in 1995 to $156.54 currently, an increase of 27.63% compounded annually . It's also interesting when you compare the executive compensation at Coke versus Monster. Monster's Rodney Sacks earned $6,223,793 in 2014, while Coke's CEO earned even more, $25.2 million in 2014.
The intrinsic value of both companies is also important to look at. Using Benjamin Graham's Intrinsic Value formula (with the previous 10 years EPS growth rate), we see that Monster has an intrinsic value of $123.80 per share while its shares are currently selling at $156.54, showing the stock is overvalued. Looking at Coke's intrinsic value using the same formula, we find that its shares are worth $30.60, also overvalued.
