Shares of Monster Beverage Corporation (NASDAQ:MNST) have posted a pretty steady rise over the course of the last five years. But is that rise slowing down? MNST stock has gained more than 15% over the last year, but it has lost 10% so far this year on a rocky rollercoaster ride lower.
The company has exactly met earnings in two of the last four quarters; the other two times it fell short. In March, shares of Monster stock suffered a double-digit, one-day loss after it missed on the top and bottom line during the last quarter of last year. Then in May, MNST stock fell again after the company again missed the expected sales figure — although its earnings were in-line with what Wall Street expected. Net sales increased 15%, including a 27% increase in international sales.
For the next quarter, earnings of 47-cents-per-share are expected, a 20% year-over-year increase, on sales growth of 12%. Those results are slated to be released in early August.
Despite the recent misses and subsequent pullback, shares of Monster Beverage don’t look particularly cheap. MNST stock is sporting a forward price-to-earnings ratio of 29 vs. an estimated 16% earnings gains in each of the next five years. It’s slated to post 10% sales growth each year. I suspect that’s because energy drinks are a fast-growing beverage market, and Monster is the biggest name out there. Investors bid MNST stock a bit ahead of its growth and then were hard on it when it disappointed.
But more growth is expected for the industry, despite the controversy around energy drinks. The energy drinks market is expected to be worth over $84 billion worldwide by 2023, reports show.
“More than 50% of the world population live in urban areas. Hectic lifestyle and rising disposable income coupled with a need for instant energy are expected to drive the market growth over the forecast period,” Grand View Research wrote.
Yet health is another mega-trend — and countless studies show that energy drinks aren’t great for you. A sports cardiologist recently released a study showing energy drinks decrease the functioning of blood vessels, which can increase the risk of heart attacks and other health problems. The drinks particularly can be dangerous for teens, too, according to U.S. News & World Report.
Of course, plenty of things have been proven unhealthy and remained popular. Right now, expectations seem to be working their way back down for Monster stock, too. Monster is experiencing declining earnings estimates for most of the upcoming periods. While that may seem like a negative, it’s actually giving the stock a lower bar, which could help prevent another disappointment.
I expect Monster Beverage Corporation to meet earnings expectations this quarter and then continue its general uptrend higher. But I don’t love these levels as an entry point for the stock. The media price target for MNST stock is $62, good for 9% upside. That’s not terrible, but I’d prefer to buy-in at a slightly better multiple, especially for a company that has disappointed a few times recently and comes with some questions related to its overall growth.
As of this writing, Robert Martin did not hold a position in any of the aforementioned securities.
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