Monster Beverage Corp (MNST, Financial) has seen a daily gain of 5.12% and a 3-month loss of -3.2%. With an Earnings Per Share (EPS) of 1.36, the question arises: is this stock fairly valued? This article aims to provide an in-depth analysis of Monster Beverage's valuation, encouraging readers to delve into the subsequent financial insights.
Company Overview
Monster Beverage Corp (MNST, Financial) is a leading player in the energy drink subsegment of the non-alcoholic beverage market. The company generates two-thirds of its revenue in the U.S. and Canada. Its portfolio includes well-known brands like Monster Energy, Monster Ultra, Java Monster, and Juice Monster. Monster Beverage also owns other energy drink brands such as Reign, NOS, Burn, and Mother. Following the acquisition of a craft brewer in 2022, the company also brews and distributes beers and flavored malt beverages. Monster Beverage controls branding and innovation but outsources beverage manufacturing and packaging to copackers and finished goods distribution to bottlers in the global Coca-Cola system. Coca-Cola is the largest shareholder of Monster Beverage with a 19.5% stake.
The stock price of Monster Beverage (MNST, Financial) is currently $57.93 per share, which is fairly close to its GF Value of $57.99. This suggests that the stock is fairly valued.
Understanding GF Value
The GF Value is a proprietary measure of a stock's intrinsic value, based on historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. The GF Value Line on our summary page offers an overview of the fair value at which the stock should ideally be traded.
Monster Beverage's stock is believed to be fairly valued, according to GuruFocus's valuation method. The GF Value estimates the stock's fair value based on historical multiples, an internal adjustment based on the company's past business growth, and analyst estimates of future business performance. If the stock's share price is significantly above the GF Value Line, the stock may be overvalued and have poor future returns. Conversely, if the stock's share price is significantly below the GF Value Line, the stock may be undervalued and have high future returns.
With a current market cap of $60.70 billion and a share price of $57.93, Monster Beverage is believed to be fairly valued. Because of this, the long-term return of its stock is likely to be close to the rate of its business growth.
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Financial Strength
Investing in companies with low financial strength could result in permanent capital loss. Therefore, it is crucial for investors to carefully review a company's financial strength before deciding to buy shares. Looking at the cash-to-debt ratio and interest coverage can provide a good initial perspective on the company's financial strength. Monster Beverage has a cash-to-debt ratio of 10000, which ranks better than 99.06% of companies in the Beverages - Non-Alcoholic industry. Based on this, GuruFocus ranks Monster Beverage's financial strength as 10 out of 10, suggesting a strong balance sheet.
Profitability and Growth
Investing in profitable companies carries less risk, especially in companies that have demonstrated consistent profitability over the long term. Monster Beverage has been profitable 10 years over the past 10 years. During the past 12 months, the company had revenues of $6.70 billion and Earnings Per Share (EPS) of $1.36. Its operating margin of 27.22% is better than 92.59% of companies in the Beverages - Non-Alcoholic industry. Overall, GuruFocus ranks Monster Beverage's profitability as strong.
Growth is probably the most important factor in the valuation of a company. The faster a company is growing, the more likely it is to be creating value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth rate of Monster Beverage is 15.5%, which ranks better than 83.33% of companies in the Beverages - Non-Alcoholic industry. The 3-year average EBITDA growth rate is 4.8%, which ranks better than 52.13% of companies in the Beverages - Non-Alcoholic industry.
ROIC vs WACC
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. We want to have the return on invested capital higher than the weighted cost of capital. For the past 12 months, Monster Beverage's return on invested capital is 28.59, and its cost of capital is 7.6.
Conclusion
In summary, the stock of Monster Beverage Corp (MNST, Financial) is believed to be fairly valued. The company's financial condition is strong, and its profitability is strong. Its growth ranks better than 52.13% of companies in the Beverages - Non-Alcoholic industry. To learn more about Monster Beverage stock, you can check out its 30-Year Financials here.
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