Source: Monster Beverage.
Year after year, Monster Beverage (MNST +1.95%) has found itself among the 10 best stocks in the market, sporting amazing long-term returns that are the envy of Wall Street. Yet just when it seems like the energy-drink specialist has finally topped out, Monster Beverage finds a way to kick itself into overdrive once again and produce even better performance. That's what happened in 2014, as Monster Beverage stock rose another 65% after attracting the interest of a longtime competitor. Let's take a closer look at Monster Beverage's 2014 and what lies ahead for the beverage company going forward.
MNST Total Return Price data by YCharts.
The one big buy that gave Monster investors a smile
Throughout the first half of 2014, Monster's performance was uninspiring. Even though the beverage company kept on posting reasonable revenue growth -- sales jumped almost 11% in the first quarter from year-earlier levels -- Monster's stock responded negatively, as investors longed for the faster growth rates that the company achieved in past years. Moreover, despite every attempt to reassure consumers, persistent worries about the possible health impact of Monster's beverages continued to plague the company, and that translated into some hesitancy among investors to push share prices even higher.
Source: Monster Beverage.
That all changed in August, when Coca-Cola (KO +0.36%) announced that it would take a 16.7% stake in Monster for $2.15 billion. That move certainly benefited Coca-Cola, which has struggled to make a splash in the energy-drink space, with its own offerings falling short on market share. But for Monster Beverage, it provides valuable access to Coca-Cola's highly efficient distribution network, and that will help the company especially in the international markets, where rival Red Bull has had a much larger presence than Monster.
Coca-Cola's deal with Monster led to a 30% surge in Monster's stock in a single day; after that, the shares proved unstoppable. Part of the gains for Monster come from the fact that the company will divest what has become its non-core non-energy drinks -- including Hansen's Natural and Blue Sky sodas, as well as Peace Tea -- to Coca-Cola, making itself an even purer energy-drink play going forward, and benefiting from strong growth rates in that space. Moreover, even though Monster saw revenue growth continue to slow in the third quarter, gains in earnings per share seemed to satisfy most investors.
What's next for Monster?
The big question for Monster Beverage's future growth involves whether current trends in the broader beverage market will support energy drinks. Long-term trends against carbonated soft drinks have clearly hurt that business compared to Monster's, and many industry analysts see government moves, like Berkeley's imposition of a tax on sugary drinks, as a much larger attack on soda, even though energy drinks like Monster's are also subject to the tax. With a solid grip on the valuable younger demographic groups, Monster has the capacity to build lifelong loyalty if it can successfully navigate the ever-changing trends in the beverage industry.
Source: Flickr via Benpop318.
International markets also represent a major growth area where Monster needs to boost sales. In just the five years from 2008 to 2013, Monster managed to grow its share of overall revenue from its international business from less than 8% to more than 20%, and its total international sales have risen almost sixfold in that time span. Efforts to release new products will play an important role both domestically and overseas; but even more important is for Monster to capitalize on early success in countries like Japan in order to build up a solid base of customers on which it can build up its overall foreign presence.
Investors have already gotten massive returns from holding Monster Beverage stock, and 2014's big gain only adds fuel to the fire of those who think the stock might not have much energy left to move higher. With all the competitive advantages at its disposal, though, 2015 isn't necessarily doomed to be a post-sugar high letdown for Monster and its shares.
