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Monster Beverage’s stock outperforms peers

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Dominant player

Monster Beverage (MNST) is a dominant player in the energy drink market. According to Euromonitor, Monster Beverage and Austria-based Red Bull collectively hold 78% of the US energy drink market share. Despite the health concerns and resulting litigation around some energy drinks, these companies are growing rapidly due to strong product demand. The SPDR S&P 500 ETF (SPY) has 0.11% exposure to Monster Beverage.

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Monster Beverage’s stock performance

Since 2014, Monster Beverage’s stock appreciated by a staggering 110%, outperforming key rivals in the non-alcoholic beverage industry. During the same period, PepsiCo (PEP) and Coca-Cola (KO) appreciated by about 18% and 4%, respectively.

Other peers like Dr Pepper Snapple (DPS) and Cott Corporation (COT) have appreciated by 66% and 24%, respectively. Monster Beverage’s stock has also outperformed the Consumer Staples Select Sector SPDR Fund (XLP) and the S&P 500 Index, which appreciated by 17% and 15%, respectively.

Relative valuation

The above graph reflects Monster Beverage’s superior valuations as compared to its peers. Monster Beverage is currently trading at a price-to-earnings (or PE) multiple of 41.5, which is about a 49% rise compared to a PE multiple of 27.9 at the beginning of 2014. The spike in the company’s valuation in August 2014 resulted from the company’s deal with Coca-Cola. Larger companies like Coca-Cola and PepsiCo are currently trading at PE multiples of 21.3 and 20.9, respectively.

Monster Beverage’s valuation is also superior to other peers in the consumer staples sector. Monster Beverage delivered strong results in 2014, with revenues rising by 9.7% to $2.46 billion and adjusted earnings per share (or EPS) up by 42.8% to $2.77, compared to 2013.

The road ahead

As we previously discussed, the deal with Coca-Cola will strengthen the already robust portfolio of Monster Beverage’s energy drinks. After transferring its non-energy drink brands to Coca-Cola, Monster Beverage can increase its focus on its core high-growth energy business and further expand its international presence through Coca-Cola’s wide distribution network.

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