With Monster Beverage (NASDAQ:MNST) set to report earnings next week, now seems like a good time to take a look at the key drivers of the stock's future. Monster has been one of the best-performing stocks of the last 10 years, but it peaked back in June and has since fallen largely on health and safety concerns that have sparked an FDA inquiry. The beverage maker's top-line growth rate also slowed considerably in last quarter, and competition is changing fast in the corner of the beverage industry, meaning there is no guarantee it will hold to its strong market share. In the excerpt below from our premium research report, we take a look at these factors and break down how each one of them will guide Monster's future.

The Three Areas You MUST Watch

  1. Growth
    Top-line growth will likely be the biggest factor in determining whether Monster will be a good investment. If the company can maintain the levels we've seen in recent quarters, at near 30%, the stock should move higher from here. Margins could narrow as the company enters markets in developing countries, but top-line growth will be the ultimate determinant of the company's long-term prospects. If growth dips below 20%, that could be a sign of weakness in any number of areas, such as increased competition from new products, market saturation, more legislative and health concerns, or simply a change in consumer tastes. Any significant change in those areas will show up on the top line.
  2. Legislative oversight
    In the legislative arena, no news is good news for Monster. The recent inquiry from the San Francisco city attorney, as well as questions from the FDA and the New York Attorney General, sparks concern that additional government intervention might be on the way. While this may not necessarily lead to any real regulation for Monster or any of its peers in the energy drink industry, the perception that the beverages might be harmful could certainly damage the brand. The more this issue ricochets around the media, the greater the possibility that sales will take a hit. Time will tell if any sort of meaningful groundswell in the legislative arena or in the general public will build against energy drinks, but the issue certainly warrants attention. Conversely, we could also see a backlash from the industry or consumers in defense of the products and against their regulation.
  3. Competitive landscape
    The fact that Monster Energy grew to be a $10 billion-plus brand just 10 years after the drink's popularization is evidence of how young and dynamic the energy drink industry is. While those factors are likely to fuel future growth, they are also indicative of the instability in the industry. Energy drinks have not yet demonstrated that they possess the staying power of other beverages such as alcohol, coffee, or soda, and the rise of energy shots shows how easily consumer tastes can shift. As one of two dominant brands in the industry, along with Red Bull, Monster will have to continue to fend off rivals gunning for its market share. The company will need to continue developing innovative and successful marketing campaigns, and may need to update its product line as competitors improve their offerings and consumer tastes change.

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