The two companies seem similar enough. Monster Beverage (MNST 0.41%) energy drinks have been around since 2002 and are one of the category's key market leaders.
Celsius Holdings (CELH 2.12%) is clearly smaller, but it should be. It's a much younger energy drink brand launched in 2005 -- and only turned up its marketing heat in 2021. It's the late-but-scrappy entrant into an established industry, and its shares are accordingly priced at a premium.
But how different can the two outfits really be? For investors, very. One stock's clearly a better bet than the other right now, in fact, and it may not be the one you suspect. Let's see why.
The advantages -- and disadvantages -- of size
Comparing two similar stocks can be tricky. That's particularly true when brand differentiation within the business is minimal (as is the case with energy drinks).
First, there's a matter of size. Monster is a much larger company with a well-established brand. Bloomberg reports that it controls roughly one-third of the global energy drinks market. On the other hand, market leaders don't have as much room to grow as newcomers, which are in a better position to steal market share.
To this end, Celsius' top line improved an incredible 108% last year. This year's revenue is expected to grow nearly 70%. At the same time, a newcomer like Celsius often must spend a relative fortune to penetrate the market. Last year, Celsius' selling and marketing costs more than quadrupled, pushing the company into the red.
By contrast, Monster already has its distribution network in place. It's also firmly profitable, and consistently so. Last year's net profit margin rate was a healthy 20%, in line with its long-term, sustained norms.
Investor enthusiasm can come -- and go
Right now, Celsius has got more explosively bullish potential. Many investors are enamored with the story, and this attracts others who help bid the stock up even further. Monster Beverage doesn't have the same x-factor or newness working in its favor.
However, this sort of euphoric bullishness can evaporate with little to no warning, especially if the economy falters. And we're certainly seeing some signs. Take the Conference Board's consumer confidence measure, which fell to a four-month low in May.
Consumer spending itself is just as lackluster. The Census Bureau says retail consumption only grew 0.3% between April and May, while May's year-over-year spending growth rate was an inflation-lagging 1.6%, extending a long streak of lethargic consumer spending.
Image source: Getty Images.
All the clues point to a strained economy, which can leave most stocks vulnerable, including both Celsius and Monster.
But Monster has a handful of growth initiatives that may well overcome any economic weakness ahead. One of these is the recent launch of malted beverage The Beast Unleashed, capitalizing on last year's acquisition of CANarchy Craft Brewery. It has also launched Monster Energy Zero Sugar, taking dead aim at Celsius' sugar-free drinks.
These new products (and others) are arguably not yet fully priced into Monster Beverage's stock.
Data source: Thomson Reuters. Chart by author.
At the same time, any looming economic weakness shouldn't do too much lasting damage to the energy drinks market itself. Data Bridge Market Research suggests the overall energy drinks business is on pace to grow at an average annual clip of nearly 13% through 2029.
The industry's biggest names, like Monster, are best-positioned to collect the lowest-hanging and highest-margin fruit of this growth. At the other end of the spectrum, Celsius arguably shouldn't spend more than it already is on its marketing efforts.
A time for risk and a time for caution
There's a time to take risks and a time to think defensively. In 2020 and 2021, when the government was pulling out all the stops to rev up the economy, it was a time to be aggressive. But the current backdrop favors sticking with well-established companies that can better weather whatever storm may be on the horizon.
Of these two names, that's definitely Monster Beverage right now, if for no other reason than the fact that consumers and investors just know it better. At the same time, analysts aren't so bullish about the Celsius' near-term prospects, giving the stock a consensus target of $147 per share -- not far from its current price of $140.
Valuation
Both stocks have enjoyed a strong upswing. Monster shares are trading 30% above where they were priced a year ago. Celsius stock is up more than 160%. Solid growth stories or not, neither rally seemingly leaves much upside left to tap into anytime soon.
That's especially so for Celsius Holdings. Although it's expected to swing back to a profit, shares are currently priced at more than 60 times next year's projected per-share earnings. Monster Beverage stock is more affordable at 32 times next fiscal year's expected profits, but that's still expensive by marketwide valuation standards.
Of course, Celsius is undoubtedly generating much more excitement right now, largely because it's relatively new. Excitement can overcome valuation concerns -- but it can also come and go.
