Energy drink maker Monster Beverage (NASDAQ:MNST) has successfully transitioned from market champagne to radioactive cocktail. As the 26th most-shorted stock on the public markets and with an earnings report only a mother could love, the company is getting pummeled on all fronts. Are the complaints overblown, or is the energy drink gold rush coming to an end for this former favorite? Let's take a look at Monster's recent earnings to see if you should buy the dip or jump on the short train.
Monster fell more than 10% upon release of its latest earnings report. Yet people didn't exactly flee from the drinks in the quarter: Sales were up 7% to $484 million. Energy-addicted analysts wanted to see $501.7 million. Just a couple of years ago, Monster was a double-digit growth machine -- posting 20% growth quarter after quarter, year after year. Parents around the world cringed as nearly every person under the age of 18 seemed to stockpile the beverages in a hidden box under the bed.
The bottom line did suffer a retraction -- from last year's $0.41 to $0.37 in the recently ended quarter. But again, it wasn't so much a drop in volume as it was a foreign currency issue. One-timers excluded, EPS growth was flat with the prior year's.
As so often happens in the market, impossible expectations and valuations caught up to an otherwise fine company. When investors buy into beverage makers at metrics as high as 40 times earnings, it just isn't that surprising when stock performance suffers in subsequent years.
So Monster is riding a triple-header of overpricing, softened demand, and continued legal battles. Does this create an unloved buy opportunity, or is it catching a falling knife?
Unfortunately for Monster investors, the stock is still expensive and has room to fall. At more than 20 times forward earnings, the market has priced Monster as a company that still grows in the double digits quarter after quarter, and is poised to do so for some time. But with 7% sales growth and flat earnings growth, it's hard to justify the price.
For comparison, soda maker of the universe Coca-Cola trades at 18 times forward earnings. Now, Coke is a much, much bigger company with a more limited growth runway, but it's also one of the greatest companies on the planet with demand that will seemingly last as long as the human race.
Monster is not a bad company. It has zero debt on the books and a $222 million cash pile. If the stock keeps heading south, showing a P/E in the low teens, there may be a buy opportunity. For now, though, steer clear of the glowing green drink maker.
Fool contributor Michael Lewis has no position in any stocks mentioned. The Motley Fool recommends Coca-Cola and Monster Beverage. The Motley Fool owns shares of Monster Beverage. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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