The Monster Coke Couldn't Slay Gets Bigger

The path to the S&P 500 is apparently lined with energy drinks.

Monster Beverage (Nasdaq: MNST  ) has been tapped to replace Sara Lee (NYSE: SLE  ) in the popular stock index after the food giant splits into two companies next week.

The move is naturally validation for Monster, one of the market's biggest winners over the past decade.

Monster isn't even the world's biggest energy drink company. Austria's Red Bull is the category killer here. However, Monster's heady growth in a category that even Coca-Cola (NYSE: KO  ) hasn't been able to successfully penetrate has drawn investors to buy into the Monster story.

The debt-free and cash-rich company even made big news earlier this year on loud rumors that Coca-Cola was looking to acquire the company. The chatter failed to pan out, and now Monster gets to join the large-cap elites that make up the 500-stock index.

These are interesting times when it comes to energy drinks. Kraft's (NYSE: KFT  ) MiO line of water enhancers has been aggressively marketing its MiO Energy product. A squirt of MiO Energy's Black Cherry or Green Thunder turns ordinary water into an energy drink.

Monster fans will argue that it's the carbonated zing that makes its energizer different than MiO's portable solution, but SodaStream (Nasdaq: SODA  ) has also been pushing its home-based water carbonator and the availability of an energy drink syrup that packs the flavor and adrenaline pop that energy-drink fans crave.

The good news for Monster is that the new competition hasn't gotten in its way. Net sales and profits soared 28% and 38% respectively in its latest quarter.

The S&P 500 is getting a true growth stock here.

The valuation's steep. Monster is fetching 37 times this year's projected profitability and a still heady 30 times next year's earnings. It may get even more expensive in the coming days. Index funds and other S&P 500 trackers will need to buy into the stock when it officially gets added to the index after next Thursday's close.

You blew it, Coke. You should've bought in when you had a rumored chance.

Drink up
Monster Beverage has been a big winner for Rule Breakers subscribers over the years, but this is now a great time to discover the next rule-breaking multibagger that the newsletter has unearthed. It's a free report. Want it? Get it.

The Motley Fool owns shares of Coca-Cola and SodaStream International. Motley Fool newsletter services have recommended buying shares of Monster Beverage, SodaStream International, and Coca-Cola. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

Longtime Fool contributor Rick Munarriz calls them as he sees them. He does not own shares in any of the stocks in this story. Rick is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early.


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  • Report this Comment On June 25, 2012, at 11:20 AM, Haiphen wrote:

    38x this year's E and 30x next year's isn't exactly value investing. One disappointing quarter and this stock will surely disappoint those with hepped up expectations bringing the price and the PE down together for a thump you're not likely to catch in time. Sounds more like a flip to me.

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