Will Earnings Help Monster Beverage Bounce Back?

Image source: Monster Beverage.

Energy-drink giant Monster Beverage (MNST 1.69%) has revolutionized the beverage industry, disrupting the dominant position that established leader Coca-Cola (KO 1.13%) enjoyed for decades. Monster's stock has been one of the top performers of the past decade, but to begin 2016, Coca-Cola has outperformed its younger peer by a substantial margin. Coming into its fourth-quarter financial report on Thursday, Monster Beverage investors hope that the company will reestablish its growth trajectory and get its share price moving in the right direction again. Let's take an early look at what Monster Beverage is likely to say in its report and what the future holds for the energy-drink king.

Stats on Monster Beverage

Data source: Yahoo! Finance.

Will Monster Beverage earnings save the day?
In recent months, investors haven't made big moves in their expectations for Monster Beverage earnings, holding their fourth-quarter estimates unchanged and cutting just a single penny from their full-year 2016 projections. The stock hasn't fared nearly as well, though, falling 13% since mid-November.

Monster's third-quarter results provided a much-needed boost to the company after it had seen substantial weakness earlier in 2015. Revenue growth came in at 19%, and net income jumped 44%, both of which were better than investors had expected. Some of the positive results likely came from retailers stocking up on inventory before an August price increase took effect, but a huge gain of 8 percentage points in gross margins was instrumental in Monster's growth. Substantial repurchase activity also helped send shares higher, and Monster said it planned to continue to buy back stock by tapping into its new $500 million repurchase program.

However, in late January, Monster became the latest target of analysts at Citron Research, who panned the stock with some arguments with which longtime shareholders will be familiar. Citron pointed to the fact that Monster shares have soared much more than its sales, noting that Coca-Cola trades at half the valuation based on enterprise value to sales, and other industry peers fetch less than a third of Monster's multiple. It also believes that energy-drink growth will slow globally to single-digit percentage rates, putting further pressure on Monster stock. The share price didn't respond to the Citron report immediately, but within a week, the stock had fallen 15%.

Yet CEO Rodney Sacks still has plenty of optimism about Monster's prospects going forward. At an investor presentation in January, Sacks singled out China as "our largest individual country opportunity in the future." The CEO said that it has already obtained provisional approvals in Shanghai and Beijing for specially formulated products for the Chinese market, and it is working with all three of the Coca-Cola bottling companies currently in China to figure out a strategy for national distribution.

At the same time, Monster has also continued to work at amping up its marketing campaign for maximum exposure. A huge social media presence includes 24 million fans on Facebook and 3 million each on Twitter and Instagram. At the same time, sponsorship deals in sports like NASCAR, Formula One, and MotoGP have shown the value of using an endorsement model.

In the Monster Beverage report, watch for explicit rebuttals from the company to Citron's assertions in its January report. As Citron admitted, the bear case for Monster is one that investors have made for years, and anyone betting against the company has lost substantial amounts of money. That in itself doesn't prove Citron wrong, but if Monster can reassure investors that its growth engines are still running strong, then the stock could bounce from its recent pullback.