Monster Beverage (NASDAQ:MNST) has been on a tear over the past three years, delivering top-line growth of 110.8% and stock appreciation of approximately 163% over this time frame. However, only the past doesn't concern Foolish investors much. You want to know what the future holds.
Monster is currently trading at a somewhat expensive 38 times earnings, but valuation isn't the biggest threat to Monster going forward. Another threat has surfaced. It remains in its infant growth stages, but a positive trend is firmly intact with the health-conscious consumer looking for an energy drink, and it's not likely to be good news for Monster -- unless the company strikes ahead of the curve.
Monster's top line has grown at a 7.5% pace over the past year. If it were maintaining its five-year pace, that number would be 22%. Monster Beverage will always have its customers since it markets itself so well to young consumers, primarily late teens and young adults. But a niche market doesn't often lead to sustainable and significant growth.
Many of today's consumers are switching from Monster and Red Bull to healthy energy-drink alternatives. I'm one of them. And based on my research, I'm far from alone. With that in mind, what are many of these consumers now drinking?
The other Bing
Petey's Bing is still in its infant stages, but consumer ratings are exceptional. For instance, if you visit Vitamin Shoppe's website, VitaminShoppe.com, you will see that Bing has a perfect five-star rating. There are only 21 reviews, but the feedback is consistent. Listed pros: provides a boost, tastes good, goes down easy, nutritional, good value. Listed cons: none.
Amazon.com also sells Bing, and there are 102 reviews. Despite so many reviews for such a young product, Bing managed to maintain a 4.5-star rating, with 76 of those reviewers rating Bing at five stars.
Bing comes in Blackberry and Cherry flavors. It's only 40 calories, 10 grams of sugar, and 120 milligrams of caffeine. Other ingredients include Ginseng supplement, Ginkgo Balboa, B-Vitamins, and Vitamin C. Further benefits include no high fructose corn syrup, no artificial colors, and no artificial flavoring.
This new beverage is unfortunately owned by a private company so it'll be awhile before Foolish investors can The point here isn't to be bullish on the company from an investment perspective. Instead it's to acknowledge Bing's long-term threat to Monster. Monster is somewhat diversified. Its brands include several versions of Monster energy drink, Hansen's Natural, Peace Tea, Worx Energy, and Blue Sky . However, what's interesting here is that despite Coca-Cola (NYSE:KO) and PepsiCo (NYSE:PEP) taking more of a hit to their reputations due to the declining demand for soda, both carbonated-beverage companies are much better situated for the rise of the health-conscious consumer.
PepsiCo's Naked Juice is also a formidable threat to Monster. As you will see below, it scores extremely high for nutritional benefits. At the same time, it offers 81.7 milligrams of caffeine per 15.2 ounces. And it comes in several flavors, including Cherry Pomegranate Power, Black & Blueberry Rush, Orange Mango Motion, and Strawberry Kiwi Kick.
Thanks to the exploding popularity of the Internet over the past two decades, people are more informed about the products they consume than at any other time in history. Therefore, the health-conscious consumer trend is likely to stay intact. That being the case, many consumers will be looking for healthier alternatives to traditional energy drinks.
According to NuVal (a nutritional scoring system developed by an independent panel of nutrition and medical experts), the three drinks offering the most nutritional value are PepsiCo's Naked Juice Mango, Bing, and Coca-Cola's Odwalla -- in that order. Coca Cola might not hold the top spot, which belongs to PepsiCo, but in addition to Odwalla, its Minute Maid OJ and Vitamin Water Squeezed also score highly.
Ironically, the bottom three scores for nutritional value are Coca-Cola, Pepsi, and Mountain Dew (a PepsiCo brand). Though not at the very bottom, other low scorers include Red Bull Sugar Free, Gatorade Fruit Punch (PepsiCo), Rockstar Juiced, Sobe (PepsiCo), Diet Dr Pepper (Dr Pepper Snapple Group), AMP Energy (PepsiCo), Red Bull, Monster, Full Throttle (Coca-Cola), and NOS (Coca-Cola).
While Coca-Cola and PepsiCo make this list several times, both companies are also toward the top of the healthy list. As a result, they're positioned for potential success regardless of consumer preferences. No Monster brands are found toward the top of the healthy list. For that reason, its long-term potential might be limited.
Fortunately, Monster does have an ace in the hole. In addition to having generated $342 million in operating cash flow over the past 12 months, it also sports a stellar balance sheet, with $613.3 million in cash and short-term equivalents and no long-term debt. Therefore, Monster should have opportunities to buy smaller companies for inorganic growth. Petey's Bing would be an ideal option. Consumers love it, and it would likely come cheap because it remains in the early stages of growth.
The Foolish takeaway
Monster is still growing, but not at the same pace as in the past. While valuation is a moderate concern, the real long-term threat is waning demand as consumers become more health conscious daily. This trend should only grow given the increased amount of information available online.
Coca-Cola and PepsiCo are much better situated for changing consumer trends, which should be expected given their fiscal dominance over Monster. However, Monster is fiscally strong on a relative basis, and the purchase of a popular and healthy energy drink like Petey's Bing, or something along those lines, would likely give it a stronger position in the healthy energy-drink market. Please do your own research prior to making any investment decisions.
Dan Moskowitz has no position in any stocks mentioned. The Motley Fool recommends Coca-Cola, Monster Beverage, and PepsiCo. The Motley Fool owns shares of Coca-Cola, Monster Beverage, and PepsiCo and has the following options: long January 2016 $37 calls on Coca-Cola and short January 2016 $37 puts on Coca-Cola. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.