3 Reasons to Sell Monster Beverage

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Monster Beverage (Nasdaq: MNST  ) may have been mastering the market so far this year, but it's time to sell while the going's good. Here are three reasons to run screaming from Monster shares.

Monster competition: Monster's energy drinks are obviously big business, and good business, too. However, the company faces competition from everyone from small beverage companies to giants Coca-Cola (NYSE: KO  ) , PepsiCo (NYSE: PEP  ) , and Dr Pepper Snapple, not to mention upstarts like SodaStream (Nasdaq: SODA  ) .

Coke's Full Throttle, PepsiCo's AMP Energy, Starbucks' (Nasdaq: SBUX  ) new Starbucks Refreshers, and Dr Pepper Snapple's Venom product lines are all energy drinks. And of course, there's the mother of all energy drinks, Red Bull. SodaStream provides a syrup flavor for its home-based drink makers that's touted as a comparable alternative to Red Bull, in fact. And let's not forget good old 5-Hour Energy Shots.

If you check out Monster's Form 10-K filed with the SEC, the list of competitive beverages is extremely formidable. There are also all manner of beverages that vie for the honor of quenching consumers' thirsts, including good, old-fashioned soda pop, iced tea, or water, not to mention scores of newfangled concoctions with all kinds of additives and purported positive health effects.

Health issues: As my colleague Sean Williams recently pointed out, sugary beverages and fatty foods of all kinds will soon be on the government's radar. He indicated Monster Beverage could be a surprising potential loser after Obamacare.

Even worse, some research has linked energy drinks' long-term use to cardiovascular problems, not to mention the potential risk of serious health issues for youth. Many companies have already felt the sting of negative public opinion when their product is viewed as even a little bit unhealthy, particularly for kids.

One monstrous run: Monster's shares have soared to spectacular highs. Its multiples are currently pretty scary. Monster's stock trades at 29 times forward earnings and sports a PEG ratio of 2.41. For a cheaper upstart in the highly competitive world of beverages, look to SodaStream, which I recently purchased for the real-money portfolio I'm managing for It trades at just 15 times forward earnings and has a PEG ratio of 0.65, signaling an undervalued stock.

Given that Monster faces a slew of competition and the possibility of a changing tide in the American view of healthy behavior and consumption, I'd say now is a perfect time for Monster shareholders to take the money and run.

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Alyce Lomax owns shares of Starbucks. The Motley Fool owns shares of Coca-Cola, SodaStream, PepsiCo, and Starbucks. Motley Fool newsletter services have recommended buying shares of Coca-Cola, Starbucks, SodaStream, PepsiCo, and Monster Beverage. Motley Fool newsletter services have recommended creating a diagonal call position in PepsiCo. Motley Fool newsletter services have recommended writing covered calls on Starbucks. 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.

Read/Post Comments (4) | Recommend This Article (6)

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  • Report this Comment On July 10, 2012, at 1:09 PM, GordonsGecko wrote:

    I do agree that perhaps it is time to sell. But I do not agree with reason #1.

    Items 2 and 3 are legit concerns.

    Item #1? Not so much. They have basically pulled even with Red Bull and the two of them combined hold over 60% of the entire market. If anything, it's the competition that can't keep up with Monster.

    Monster has a history of innovation. Different lines. Different flavors. Coffee drinks. Etc. They don't sit on their arses, put out a larger can of the same stuff and call that innovation. Ahem... Red Bull?

    And last but not least, they have distribution agreements with Coke. That gives them access to the best channels, the most stores and a whole lot of shelf space.

  • Report this Comment On July 10, 2012, at 1:25 PM, TMFLomax wrote:

    Thanks for the thoughts on the competitive landscape, GordonsGecko. That's a good point that having such market advantages in the can (sorry, couldn't resist) can be a formidable moat vs. competitive products hitting the market. But whew, everybody's wanting a piece of this market. It's pretty amazing.



  • Report this Comment On July 10, 2012, at 8:08 PM, somethingnew wrote:

    While the competition is out there I'd have to say that to the won over Monster fan (including myself) it's hard to find anything that matches or exceeds the taste or quality except maybe Redbull. I've had all the above brands and then some and the majority just don't compare although taste is subjective and hard to quantify. In my opinion Red Bull is about their only contender in this realm but then again I could claim Double Cola is the best tasting soda out there and that wouldn't change Coke's position as the number one soda maker in the world. As for as health issues, there are plenty. It is unhealthy and I limit my intake to 3 on the weekends. I've overdosed on Monster among other energy drinks about 3 times and ended up feeling like someone literally punched me in the stomach where it hurt so bad that I had to ease myself out of bed when I got up in the morning. I found out later it was a diaphram muscle spasm from all the caffeine. I think it will be a long time though if ever that health issues will be addressed adequately because the research so far has been scant and related deaths via caffeine, although they do exist, are almost always related to other serious underlying health issues that the victim already had. I think this would make it hard to regulate. As for as the 3rd issue, multiples, I think if a company is overvalued and you have held onto it for a long time already (say 8 years or so) and nothing in the fundamentals have changed you should keep holding onto it if you believe it's a long term winner. I personally don't own shares in Monster because even though I like the taste I'm not convinced that it will continue to grow like it has. I own Coke shares because of my long term views of the company and SodaStream because of their dedicated Europeon base and because it's growing steadily in the U.S. as well.

  • Report this Comment On July 13, 2012, at 7:42 PM, ttouch00 wrote:

    I agree but not so much on Item #1. As Full throttle is almost obsolete, if not for Coke being its life line it would have been dead many years ago, same goes for Venom with Dr Pepper and Amp with Pepsi.

    Only 1 issue with Monster as to why its ride is coming to a severe halt. Take a look back at how this Brand started, it was a brand built on the streets through powerful field marketing and sales staff with a get it done attitude. Well, sadly to say, the cash cows have become just that and the street pushers are all milked out. How do I know, well lets just say its no longer transparent. Seems entire field and sales staff has a side gig/job(linkedin). No longer exists the days of 110% effort. Look for a 50% staff effort year in 2013 (70% effort in 2012).

    I noticed on Linkedin(you can call HR as well), there has been absolutely 0 field marketing and sales staff promoted from their position in the last 7 years. Sad for a company that was built in the field. Over 2000% percent growth in 7 years and only 10% internal staff growth. That is one milked out cow.

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