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Monster Beverage’s stock performs better than its peers

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Dominant players

Monster Beverage Corporation (MNST) is the second largest energy drink maker. It grew steadily. The largest company is Austria-based Red Bull GmbH.

The growing demand for energy drinks across the world helped the company outperform non-alcoholic beverage players—like The Coca-Cola Company (KO), PepsiCo, Inc. (PEP), and Dr Pepper Snapple Group, Inc. (DPS).

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Monster overshadows its peers

Since 2010, Monster Beverage’s stock appreciated by a staggering 481%. This is way ahead of its peers in the non-alcoholic beverage industry. In the same period, Coca-Cola, PepsiCo, and Dr Pepper Snapple Group were up by 51%, 60%, and 158%, respectively. Monster Beverage benefited from energy drinks’ growing demand. In contrast, Coca-Cola and other peers were impacted by declining soda volumes in developed markets. Also, these companies lagged strong energy drink portfolios—like Monster Beverage and Red Bull.

The consumer staples sector is represented by the Consumer Staples Select Sector SPDR ETF (XLP). It appreciated by 87% during this period. It lagged Monster Beverage.

Valuation

We use the price-to-earnings ratio, or PE, to perform a relative valuation of a company and its peers from a shareholder’s standpoint. Since 2010, Monster Beverage has been trading at a higher PE ratio—compared to its peers. Generally, a stock with a higher PE multiple is considered overvalued. However, Monster Beverage’s higher valuation—compared to its peers—is backed by its high growth potential.

In a recent deal, Coca-Cola bought a 16.7% stake in Monster Beverage. The deal will boost Monster Beverage’s growth prospects. As discussed in Part 4 of this series, Coca-Cola will transfer its energy product portfolio to Monster Beverage. Coca-Cola will transfer its portfolio in exchange for Monster Beverage’s non-energy drink portfolio. Monster Beverage will also benefit from its expanded distribution agreement with Coca-Cola. It will help extend the company’s geographical reach.

However, investors need to be cautious about energy drinks’ growing regulatory scrutiny. The scrutiny could impact future sales.

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