The stock of Monster Beverage (NAS:MNST, 30-year Financials) is believed to be modestly overvalued, according to GuruFocus Value calculation. GuruFocus Value is GuruFocus' estimate of the fair value at which the stock should be traded. It is calculated based on the historical multiples that the stock has traded at, the past business growth and analyst estimates of future business performance. If the price of a stock is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. On the other hand, if it is significantly below the GF Value Line, its future return will likely be higher. At its current price of $91.91 per share and the market cap of $48.5 billion, Monster Beverage stock appears to be modestly overvalued. GF Value for Monster Beverage is shown in the chart below.
Because Monster Beverage is relatively overvalued, the long-term return of its stock is likely to be lower than its business growth, which averaged 13.8% over the past three years and is estimated to grow 10.75% annually over the next three to five years.
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Since investing in companies with low financial strength could result in permanent capital loss, investors must carefully review a company's financial strength before deciding whether to buy shares. Looking at the cash-to-debt ratio and interest coverage can give a good initial perspective on the company's financial strength. Monster Beverage has a cash-to-debt ratio of 10000.00, which ranks better than 99% of the companies in the industry of Beverages - Non-Alcoholic. Based on this, GuruFocus ranks Monster Beverage's financial strength as 9 out of 10, suggesting strong balance sheet. This is the debt and cash of Monster Beverage over the past years:
Companies that have been consistently profitable over the long term offer less risk for investors who may want to purchase shares. Higher profit margins usually dictate a better investment compared to a company with lower profit margins. Monster Beverage has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $4.6 billion and earnings of $2.64 a share. Its operating margin is 35.51%, which ranks better than 97% of the companies in the industry of Beverages - Non-Alcoholic. Overall, the profitability of Monster Beverage is ranked 10 out of 10, which indicates strong profitability. This is the revenue and net income of Monster Beverage over the past years:
Growth is probably the most important factor in the valuation of a company. GuruFocus research has found that growth is closely correlated with the long term stock performance of a company. A faster growing company creates more value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth of Monster Beverage is 13.8%, which ranks better than 81% of the companies in the industry of Beverages - Non-Alcoholic. The 3-year average EBITDA growth rate is 13.6%, which ranks better than 76% of the companies in the industry of Beverages - Non-Alcoholic.
Another method of determining the profitability of a company is to compare its return on invested capital to the weighted average cost of capital. Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. When the ROIC is higher than the WACC, it implies the company is creating value for shareholders. For the past 12 months, Monster Beverage's return on invested capital is 42.07, and its cost of capital is 8.51. The historical ROIC vs WACC comparison of Monster Beverage is shown below:
Overall, the stock of Monster Beverage (NAS:MNST, 30-year Financials) shows every sign of being modestly overvalued. The company's financial condition is strong and its profitability is strong. Its growth ranks better than 76% of the companies in the industry of Beverages - Non-Alcoholic. To learn more about Monster Beverage stock, you can check out its 30-year Financials here.
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