Philip A. Fisher pioneered the "growth stock" school of investing, in which people invest in companies that harbor above-average growth potential. Home coffee and tea brewing system company Keurig Green Mountain (GMCR.DL) and energy drink seller Monster Beverage (MNST 1.12%) may fit the "growth stock" criteria. Let's take a look at just how fast these companies are growing and see whether or not these companies sit on solid financial footing.
Easier beverage prep
Keurig Green Mountain makes it easier for the busy consumer to prepare coffee or tea throughout the day. The company sells a home brewing system that brews coffee, tea, and other hot beverages. In an effort to secure market leadership in home brewing, Keurig Green Mountain partners with as many coffee and tea companies as it can to procure exclusive arrangements to manufacture K-Cups on their behalf for use in Keurig machines.
Keurig Green Mountain grew its revenue, net income, and free cash flow 6%, 25%, and 4% so far this year. Increased K-Cup volume served as the primary driver for the overall year-to-date revenue expansion.
Higher sales volume of its packs, lower expenses stemming from lower green coffee expenses, and interest expense due to lower long-term debt outstanding contributed to the gains in year-to-date net income. Lower capital expenditures contributed to the gains in free cash flow.
Keurig Green Mountain sits on an excellent balance sheet, with cash and long-term debt-to-equity clocking in at 34% and 5%, respectively, last quarter. A low long-term debt balance means less interest to choke out profitability and cash flow. Keurig Green Mountain recently initiated a regular dividend and paid out 8% of its year-to-date free cash flow. Currently, Keurig Green Mountain pays shareholders $1 per share per year, yielding 0.9% annually.
Energy fuels growth
Monster Beverage sells "alternative" beverages under names such as Monster Energy and Muscle Monster. Monster Beverage expanded its revenue, net income, and free cash flow 11%, 50%, and 275%, respectively, in the most recent quarter.
Global volume increases from its Monster Energy brand and expansion into international markets served as the primary catalysts for the increase in revenue. Production efficiencies and lower expenses stemming from termination of distributors, lower insurance premiums, and lower marketing expenses contributed to gains in net income.
Favorable changes in operating assets and liabilities, specifically in inventory, accounts receivable, and income taxes payable, contributed to the year-over-year gain in free cash flow. You can't ask for a better balance sheet, with cash clocking in at 68% of stockholder's equity and no long-term debt. Monster Beverage does not currently pay a regular dividend, as it prefers reinvesting in the business.
The future
Both of these companies still have room to grow. Keurig Green Mountain wants to expand into the home carbonated soda business with the development of the Keurig Cold device. Look for Keurig to expand its partnership base in order to bring you a wider variety of beverage options. Moreover, look for Keurig Green Mountain's dividend to grow over time. Monster Beverage's expansion into international markets will serve as a catalyst for future capital gains and possible dividends. With rock-solid growth and balance sheets these companies definitely deserves a spot in your portfolio.
