Why Monster Beverage's Shares Got Stomped

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of energy-drink maker Monster Beverage (Nasdaq: MNST  ) were losing their fizz today, falling as much as 13% in intraday trading on the news that the company is being investigated by a state attorney general.

So what: The disclosure in Monster's 10-Q filed yesterday with the SEC reads:

In July 2012, the Company received a subpoena from a state attorney general in connection with an investigation concerning the Company's advertising, marketing, promotion, ingredients, usage, and sale of its Monster Energy brand of energy drinks. As the investigation is in an early stage, it is unknown what, if any, action the state attorney general may take against the Company, the relief which may be sought in the event of any such proceeding, or whether such proceeding could have a material adverse effect on the Company's business, financial condition, or results of operations.

That's clear enough -- there's an investigation that could have negative implications for the company and its chief product, so we're clearly looking at bad news here.

Now what: But while it's easy enough to conclude that investigation by a state attorney general is bad news, there is a ton that's unanswered here. We don't know which state this comes from -- I figure we can assume it's just one state, since Monster uses "a state attorney general" -- nor do we know what specifically is under investigation. Without knowing any of that, it's hard to conclude what repercussions could result from this.

I can't blame investors for being skittish after this disclosure, but for current Monster shareholders, deciding whether to sell or buy -- to take advantage of today's drop -- is really a crapshoot until there's some more color on what exactly is going on here.

Want to keep up to date on Monster Beverage? Add it to your Watchlist.

Motley Fool newsletter services have recommended buying shares of Monster Beverage. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Fool contributor Matt Koppenheffer has no financial interest in any of the companies mentioned. You can check out what Matt is keeping an eye on by visiting his CAPS portfolio, or you can follow Matt on Twitter, @KoppTheFool, or on Facebook. The Fool's disclosure policy prefers dividends over a sharp stick in the eye.


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  • Report this Comment On August 10, 2012, at 5:45 PM, TMFSpiffyPop wrote:

    I'm assuming it's some effort to politicize commonly discussed downsides to energy drinks, like how they're not all that healthy and can freak some people out when mixed with alcohol. It's just a guess -- I'm not following this very closely, and don't drink energy drinks. But this is the sort of things states attorneys general often go after. My bet here would be: no big deal.

  • Report this Comment On August 11, 2012, at 4:10 AM, Clint35 wrote:

    They especially go after things like that in an election year.

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