STOCK PICK: Could this be the modern day Coca-Cola?
A beverage company with loyal customers and influencers.
This stock pick is a leading player in the global beverage industry, renowned for its production and distribution of energy drinks, natural soft drinks, and other novel beverages. Founded in 1935 and headquartered in Corona, California, the company was previously known as Hansen Natural Corporation until it rebranded in 2012, marking its unwavering commitment to the energy drinks market.
Today's stock pick is none other than Monster Beverages Corporation (NASDAQ: MNST).
Company Overview
Monster Beverage's product portfolio includes the flagship Monster Energy line, which holds a strong position in the worldwide energy drink segment, as well as several other offerings like the Juice Monster, Java Monster, and the low-calorie Monster Energy Zero Ultra. Each product is specially crafted to provide consumers with an energy boost, targeted at those leading active and busy lifestyles, such as students, professionals, and athletes.
The company's success has been propelled by innovative marketing strategies, including sponsoring extreme sports events, music concerts, and influential personalities that align with the brand's bold and energetic image. This has led to a strong brand presence, particularly amongst younger demographics.
Additionally, Monster's strategic alliance with The Coca-Cola Company, one of the world's largest beverage companies, has considerably extended its distribution reach, allowing the company to serve customers in numerous countries across the globe.
Despite the competitive market, Monster Beverage Corporation continues to accel, supported by its strong brand, global presence, and innovative product offerings. Its focus remains on catering to the ever-changing consumer preferences for energy drinks, underlining the company's commitment to growth and sector leadership.
Why Invest In Monster?
Strong Financials
One of the first things I look at when evaluating a company is its finances. Monster's financials are phenomenal, to say the least. Take a look: (The numbers below are as of the time of this stock pick, or June 14, 2023 - for updated numbers, visit the key stats page for MNST on Yahoo Finance).
Cash & debt: $3.06B in cash with only $38.03M in debt
Growth rates:
Quarterly revenue growth (YoY): 11.9%
Quarterly earnings growth (yoy): 35.1%
Return on equity (ttm): 18.16%
Levered free cash flow (ttm): $857.95M
Inside ownership: 28.02%
In short, they have plenty of cash to weather any storm. We're in the aftermath of COVID, and they still maintain a strong cash balance with relatively minimal debt. Their growth continues to trend upward, and there is very high inside ownership, indicating that the leadership team has some skin in the game. These all spell out potentially a very profitable stock pick.
Industry Moats
A "moat" in business terms refers to a company's ability to maintain competitive advantages over its competitors, making it harder for competition to enter the market. Industry moats protect a company's long-term profits and market share from competing companies. Here are some of Monster Beverage Corporation's industry moats:
Brand Recognition: Monster has a highly recognizable brand, particularly in the energy drinks sector. The "Monster" logo is well-known, and the company has done an excellent job of associating its brand with extreme sports and energetic lifestyles, which resonates with its primary customer base.
Distribution Network: Monster's partnership with The Coca-Cola Company allows it to leverage Coca-Cola's expansive global distribution network. This helps Monster products reach consumers in numerous countries and gives the company a significant advantage over competitors with lesser distribution capabilities.
Product Innovation: Monster has a track record of successful product innovation. The company regularly releases new flavors and limited edition products, helping to keep the brand fresh and exciting to consumers.
Economies of Scale: As one of the most prominent players in the energy drink market, Monster enjoys economies of scale, particularly in terms of production and distribution. This allows it to maintain competitive pricing and profit margins.
Customer Loyalty: The company has cultivated a strong following among consumers, particularly younger demographics, through effective marketing campaigns and brand partnerships.
Market Ownership: As of 2021, Monster had the second largest market share in the energy drinks sector with approximately 30% market share, just behind Red Bull with just under 50% market share.1
Leadership
Monster Beverage Corporation's leadership team comprises experienced executives who have led the company to become a dominant player in the energy drink industry.
The key figure in the leadership team is Rodney C. Sacks, who serves as the Chairman and CEO. Sacks, along with Vice Chairman and President Hilton H. Schlosberg, have been leading the company since the early 1990s. Their strategic decisions, including the shift from natural beverages to energy drinks, have played a vital role in shaping Monster's current market position.
The management's ability to navigate a highly competitive landscape, execute innovative marketing strategies, and maintain steady growth has generally been well-regarded by investors. The decision to form a strategic partnership with Coca-Cola, giving Monster access to a much larger distribution network, is a prime example of management's strategic initiatives that have earned investor confidence.
Innovative thinkers such as Sacks and Schlosberg leading the company are excellent examples of strong leadership and strategic execution, making Monster an ever-convincing candidate to add to your portfolio.
Sponsored influencers
Why are sponsored influencers important? Because if the most well-known names in given sports categories are drinking Monster, then so will their fans. Furthermore, strong influencers establish the company as the go-to product for consumers and builds the foundation for a lasting reputation.
Monster Beverage Corporation is known for its extensive influencer marketing campaigns and sponsorships, particularly within the extreme sports and music sectors. The company sponsors numerous athletes and artists, including professional skateboarders, motocross riders, esports players, MMA fighters, and musicians.
Monster has hundreds of sponsored influencers, playing a vital part in their brand value, name recognition, and consumer trust. A few notable influencers and athletes associated with Monster include:
Nijah Huston - Pro skateboarder
Chase Sexton - Supercross
Sean O'Malley - MMA
Team Liquid - Gaming and esports
Take a look at Monster's entire Sponsored Influencer Roster here.
Innovation
Monster Beverage Corporation has consistently demonstrated its commitment to innovation and bringing new products to market. Here are some of the ways the company has been focusing on innovation:
Product Line Expansion: Monster continuously expands its product line with new flavors, special editions, and unique formulations. For example, in recent years, the company introduced new products like the Monster Energy Ultra line with zero sugar and the Juice Monster line that blends juice with the traditional energy drink.
Health-Focused Innovations: As health and wellness trends continue to impact the beverage industry, Monster has been looking into healthier energy drink options. This includes reduced-sugar offerings and potentially new products infused with vitamins, minerals, and other health-enhancing ingredients.
Targeting New Demographics: Monster also looks for opportunities to target new customer demographics with unique product offerings. One example is Java Monster, a line of coffee-flavored energy drinks designed to appeal to coffee drinkers.
Exploring New Beverage Categories: In the past, Monster has also signaled that it may explore new beverage categories outside of energy drinks. This could lead to new product lines in the future.
Competitors to Monster Beverages Corp.
Monster Beverage Corporation's biggest competitors in the energy drink and broader beverage industry include:
Red Bull GmbH: (Private company) Red Bull is an Austrian company that produces the most globally recognized energy drink. Red Bull and Monster are often seen as the top competitors in the energy drink market.
The Coca-Cola Company: (NYSE: KO) Despite their strategic partnership in distribution, Coca-Cola also produces energy drink products, which places them in competition with Monster.
PepsiCo, Inc.: (NASDAQ: PEP) PepsiCo manufactures a wide range of beverages and also entered the energy drink market, presenting competition for Monster.
Rockstar, Inc.: (Private company) Acquired by PepsiCo in 2020, Rockstar is another major player in the energy drink market.
Potential Risks of Investing In Monster
While Monster Beverage Corporation has seen significant success and growth, here are some potential risks that investors should consider:
Health Concerns and Regulatory Risk: There are ongoing health concerns about the high caffeine content and other ingredients used in energy drinks. These concerns could lead to stricter regulations, negatively impacting Monster's sales and reputation.
Dependence on the Energy Drink Market: As of 2021, Monster Beverage Corporation's primary business focus is on energy drinks. This lack of diversification could leave the company vulnerable to any downturns or shifts in consumer preferences within this specific market.
Competition: The beverage industry is very competitive, with many well-established players like Red Bull, Coca-Cola, and PepsiCo. Any changes in strategy or new product launches by these competitors could affect Monster's market share.
Supply Chain Disruptions: Like any company involved in manufacturing and global distribution, Monster is subject to potential supply chain disruptions due to factors such as trade restrictions, tariffs, and international events.
Reliance on Coca-Cola for Distribution: Monster's distribution agreement with Coca-Cola provides substantial benefits, but it also creates reliance. Any changes to this relationship could have significant implications for Monster's ability to distribute its products.
Economic Conditions: While beverage companies often demonstrate resilience during economic downturns, broader economic conditions can still impact sales.
As with any investment, it's important to balance these risks against potential rewards. As Monster continues to grow and innovate, indicators that fall within any of the above risk categories may be a reason for a second look. Having said that, all investments come with risk, and I'm betting big on Monster Beverages Corp.