Although the evolution of artificial intelligence (AI) has been Wall Street's defining trend for the better part of the last four years, it's not the stock market's only upside catalyst. Stock splits being conducted by high-profile companies are generating ample buzz on Wall Street.
While several remarkable companies have completed splits this year, including AI-driven cybersecurity solutions provider CrowdStrike Holdings and online travel site Booking Holdings, none have the resume of Wall Street's latest blockbuster stock split, Monster Beverage (MNST +1.18%), which has gained a whopping 337,000% since the start of 1994.
Image source: Getty Images.
Split type matters for investors
A stock split is an event that allows a public company to cosmetically adjust its share price and outstanding share count. These changes are superficial in that they don't affect a company's market cap or its operating performance.
Though stock splits only come in two varieties, investors have vastly different opinions of these corporate actions.
Reverse splits, which are designed to increase a company's share price, are typically shunned by investors. This is the type of split struggling businesses undertake to avoid delisting from a major stock exchange.
NASDAQ: MNST
Key Data Points
Meanwhile, investors are attracted to companies completing forward splits, which are geared at making their shares more nominally affordable for everyday investors. If a company has to lower its share price to ensure that retail investors can participate in its growth story, it must be doing something right.
Energy drink behemoth Monster Beverage falls into the latter camp. Its board of directors announced plans to conduct a 2-for-1 forward split on July 8, with this split going into effect after the close of trading on Aug. 10. When the opening bell rings today, Aug. 11, Monster's share price will be halved.
Image source: Getty Images.
This Monster can't be tamed
This isn't Monster Beverage's first rodeo, but rather its sixth time completing a forward split since its initial public offering. The reason it's enacted six forward splits ties back to its indispensable partnership with Coca-Cola (KO -0.21%), as well as its mammoth energy-drink market share.
In 2014, Monster and Coca-Cola announced an asset swap for the ages that's proven highly beneficial to both parties. Coca-Cola transferred its energy drink operations to Monster and took a 16.7% stake in the company (it's since grown to about 20%), while Monster transferred its non-energy drink operations to Coke.
Arguably, the most important aspect of this close-knit relationship has been Monster Beverage gaining access to Coca-Cola's global distribution network. Coca-Cola has a presence in all but three countries worldwide.
Monster Beverage is the top-performing stock in past 30 years.
-- Trung Phan (@TrungTPhan) February 18, 2024
A $1,000 investment in 1994 would be worth $2,000,000 today (+200,000% gain).
Its partnership with Coca-Cola has been so smart:
▫️In 2015, Coca-Cola bought a 16.67% stake for $2B
▫️They swapped drink portfolios:... pic.twitter.com/wNXb2UFW71
Monster Beverage's 337,000% total return over the last 32-plus years is also a reflection of its core positioning in the domestic energy drink market. Monster and Red Bull account for the bulk of U.S. energy drink market share.
The only downside for Monster is that it isn't cheap. The company's forward price-to-earnings (P/E) ratio is nearly 37, representing a 16% premium to its average forward P/E ratio over the trailing five years. But with Coca-Cola in its corner and a sustainable moat in its sails, Monster Beverage's future continues to look bright.
