Many investors know how well Apple has performed for shareholders since the year 2000. With total returns of just over 20,000% since then, Apple has grown the wealth of its shareholders dramatically this century.
Yet, there is another well-known brand hiding in plain sight that has trounced Apple (and every other U.S. stock, for that matter) over this time period: Monster Beverage (MNST -1.46%). Here's why the energy drink maker has crushed it for shareholders over the last 20 years and what the future might hold for this underfollowed stock.
MNST Total Return Level data by YCharts
Riding a change in consumer habits
Monster Beverage used to be called Hansen's Natural, and was originally the owner of the niche soda and juice brands under the same name. The business wasn't worth much since getting started in the Great Depression, but it developed a product in the late 1990s and early 2000s that put it on the course for stock market fame.
This was the launch of the Monster Energy brand, a rugged energy drink with a tough connotation, sold in large and colorful cans. It was a perfect counterposition to the leading energy drink on the market at the time, Red Bull, which had slim cans and marketing that targeted a more affluent customer.
Today, both Red Bull and Monster dominate the energy drink space, forming a duopoly that is reminiscent of Coca-Cola and PepsiCo. As of 2020, both brands had approximately 40% market share of energy drink revenue globally. Monster, with the combination of rapid market share gains and an overall industry that grew sales by 5,000% since 1999 in the United States, went from generating less than $100 million in revenue a year to $6.3 billion in 2022.
Riding the tidal wave of energy drink growth over the last 20-plus years around the world, Monster Beverage has become a (pun intended) monster stock for shareholders, up 116,700% since the start of 2000. That means every $1,000 invested in this stock at the beginning of 2000 is worth over $1 million today.
Why the stock has performed so strongly
The formula for a 100-bagger (or in the case of Monster Beverage, a 1,000-bagger) has two ingredients: Consistently strong revenue growth and multiple expansion. Monster Beverage has had both in spades since the year 2000, driven by the massive adoption of energy drinks by consumers around the globe.
Revenue has grown at a 20% compound annual growth rate (CAGR) since 2000. Over that same time period, its price-to-sales (P/S) ratio has expanded by over 1,000% from under 1 to approximately 9. Why is the market assigning a higher P/S to Monster Beverage? Because its operating margin has grown from around 10% in 2000 to 25% in 2022.
And 2022 was actually a weak year profit-wise for Monster. In the past few years before 2022, its operating margin was well above 30%. This shows the incredible profit pools a scaled consumer packaged goods business can generate for shareholders.
MNST PS Ratio data by YCharts
What does the future hold for Monster?
Today, with its margins down, Monster Beverage trades at a price-to-earnings ratio (P/E) of 47, which is well above the market average. However, don't think this means you have missed the boat in owning this long-term compounder. The energy drink market is still growing around the globe each year, with analysts projecting industry revenue to grow by around 10% per year this decade.
If Monster can retain its approximate 40% market share, its revenue will grow along with overall industry volumes. Margins should also revert back to 30%-plus over the next few years as the company better manages inflationary inputs that soared during 2022 and are now looking to subside. It should also continue to see margin expansion through economies of scale.
Don't expect forward returns to be anywhere near the rate of the last 20 years for Monster Beverage. But with a leading brand in a growing consumer market, I think it will be hard to lose money owning this stock over the long haul.
