Monster Beverage Corp (NASDAQ:MNST) has been on a tear for the last year, with shares of MNST stock roughly doubling in the past 12 months.
The first catalyst for this Monster move (pardon the pun) was an August announcement that The Coca-Cola Co (NYSE:KO) would be increasing its stake in MNST stock. Specifically, Coca-Cola acquired a 16.7% minority interest in Monster for $2.15 billion — with a chance to increase its exposure further to as much as 25%. That had investors smelling a buyout, and MNST stock gapped up on the news as a result.
More recently, shares of Monster Beverage Corp jumped by almost 15% in a single session after the energy drink company posted strong profits — 72 cents in earnings per share over forecasts of just 59 cents and a previous tally of just 44 cents in EPS a year ago.
It has all added up to big gains for MNST stock investors. But can this run continue?
MNST Stock – Still a Coke Buyout Target
I think the run in Monster is at risk of overheating a bit in the short-term, with the stock boasting a forward price-to-earnings ratio of about 33 after the recent run-up in MNST stock.
However, there’s a reason that investors are so willing to pay a premium for this stock — because it’s growing fast, and because it’s attractive in a market with few alternatives.
On top of its already impressive past earnings performance, Monster is poised to see revenue grow another 18% in FY2015 and by double digits yet again in FY2016. Furthermore, profits should soar 22% this year, from $2.77 in FY2014 to an estimated $3.37.
Find me another stock with this kind of momentum and that kind of growth outlook, please.
MNST stock is admittedly hot and investors should expect volatility. However, the continued interest from Coca-Cola — and the continued desperation of the soft-drink giant as it fights against sluggish sales and looks to evolve beyond its sugary flagship cola — may mean that a premium will stick with Monster shares based on the remaining potential of a buyout.
There are much worse places to put your money right now than in a fast-growing stock with the wind at its back and serious buyout interest from a $180 billion megabrand. So investors should continue to have faith in MNST stock even after this run.
Jeff Reeves is the editor of InvestorPlace.com and the author of “The Frugal Investor’s Guide to Finding Great Stocks.” As of this writing, he did not hold a position in any of the aforementioned securities. Write him at firstname.lastname@example.org or follow him on Twitter via @JeffReevesIP.