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Monster Beverage Is Scared for Its Life

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Shares of Monster Beverage (NASDAQ: MNST  ) have been extra volatile lately, primarily because of regulatory concerns over the company's namesake energy drink. The Food and Drug Administration launched an investigation last year into the safety of such beverages, after a series of cases were filed against the company. The latest twist in the energy libation probe came this week when Monster filed a lawsuit in federal court against San Francisco's city attorney.

Monster files back
In the suit filed Monday, Monster pleaded with a federal court to stop San Francisco city attorney Dennis Herrera from trying to enforce restrictions on the company's energy drinks. Monster is the leading seller of energy drinks in the U.S. by volume, according to The Wall Street Journal. However, the company's market share could suffer gravely if Monster is hit with added restrictions on the caffeine content of its beverages or its marketing efforts.

Monster continues to stand by its claim that its energy concoctions are safe. Yet, until now, the company hadn't taken a proactive stance against its critics. This suggests that Monster is increasingly worried about the implications such regulations might have on its business. Specifically, Mr. Herrera is asking that Monster reduce the size of its drinks to 16 ounces, reduce the caffeine content to 160 milligrams, increase the warning labels on its cans, and only market the products to people over the age of 18.

These are serious limitations, particularly because in 2012, Monster energy drinks accounted for 91% of the company's net revenue. Although, Monster isn't alone in regulation purgatory. The FDA has also been investigating products made by other beverage giants including PepsiCo's AMP energy drinks. However, Pepsi has a multi-billion dollar snacks business to fall back on if increased regulations flatten its energy brand. Monster, on the other hand, has everything to lose.

Herrera is sticking to his guns, and said that he plans to see the case through to the end. It will be interesting to see how Monster defends itself going forward. However, this could grow into a serious problem for the company if other state regulators join Herrera's cause.

How to play it

The stakes are high for Monster Beverage these days. The stock had been nothing short of a rocket, but recent developments have sent shares spiraling downward. Health scares sparked a number of investigations at the state and federal level into the energy drink's role in several fatalities. With the company's value slashed in half, investors are wondering whether Monster Beverage is a value or a bust in the fast-growing energy drink category. Find out now in our premium research report, which details all you need to know about Monster Beverage. Click here now to claim your copy and start reading today.

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9/27/2016 4:00 PM
MNST $147.76 Up +0.16 +0.11%
Monster Beverage CAPS Rating: ***