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Monster Beverage stock (
NASDAQ:MNST
) has produced market-beating returns for nearly three decades. The stock has climbed from ~$0.01 in 1996 to $57.18 today, suggesting a tremendous 27-year compound annual growth rate (CAGR) of 33.8%. During this period, its market cap has exploded from $5.7 million to $59.5 billion. While the energy drinks giant remains a solid pick in the industry, rising competition could hamper its market-beating momentum. Consequently, my outlook on the stock is neutral.
Assessing Monster Stock's Market-Beating Track Record
Monster stock does not just boast a decades-long track record of market-beating returns, but it's, in fact, the best-performing stock in the whole market since the mid-90s. Even when compared to some of the best-performing stocks over the same period, Monster's returns dwarf them.
Consider the phenomenal growth of tech giants Apple (
NASDAQ:AAPL
) and Microsoft (
NASDAQ:MSFT
), evolving from early innovators to the world's most valuable companies with returns of approximately 90,069% and 8,732%, respectively, since mid-May 1996. Nvidia (
NASDAQ:NVDA
) has also dazzled investors with an impressive 162,075% return during this period.
Yet, the standout performer is Monster, boasting an extraordinary 337,704% return over nearly 27 years. This unparalleled success places Monster ahead of Apple, Microsoft, and Nvidia, cementing its legacy in the realm of exceptional investment achievements.
One could argue that I have cherry-picked the time frame in question, but the truth is that Monster has produced market-beating returns even in recent times. The company has beaten all three of the above companies over the past 20 years as well, producing returns of 66,518%, while over the past decade,
shares have risen by 379%, implying a CAGR of 17%, also beating the broader market by a wide margin.
Monster's outstanding history of generating value for shareholders can be credited to several factors. Not only did the company seize an early opportunity by becoming a pioneer in the thriving energy drinks market, but its triumph is also rooted in its dedication to product innovation, sharp marketing strategies, and successful global expansion initiatives.
The company has continuously introduced new and unique energy drink products, maintaining a fresh appeal for consumers. Monster's edgy branding and strategic partnerships, notably with Coca-Cola (
NYSE:KO
), have enhanced its distribution capabilities and global reach, all the while sustaining impressive profit margins.
Speaking of margins, Monster's profitability stands at industry-leading levels. Its operating margins have mostly hovered between 30% and 38% over the past decade. Even last year, when warehousing costs, other logistical expenses, and increased payroll expenses resulted in higher operating expenses, its operating margin remained above 25%, while its net income margin came in at 18.9%.
The reason Monster's net margin isn't that far off its operating margin is that there are no interest expenses to compress its profitability. The company has $0 of debt on its ultra-clean balance sheet. Instead, it boasts a net cash position of $2.96 billion. The fact that the company managed to scale from revenues of $35.6 million in 1996
to $6.31 billion last year is a testament to management's competence and has certainly contributed significantly to the stock's extraordinary total return profile.
Competition Could Hamper Future Returns, Nonetheless
Monster's robust growth and juicy profit generation are likely to persist in the coming years. However, rising competition could hamper the stock's potential for market-beating returns. The company's sales are expected to have grown by 13.5% for Fiscal 2023. Growth is expected to decelerate to about 11.7% for Fiscal 2024, while by Fiscal Year 2027, the company's growth is expected to decelerate to the single digits.
For context, Monster commands just over 33% of the energy drinks market, coming only second to Red Bull, which holds a 44% share. However, many smaller competitors fight both for the remaining market share and that of the two giants.
Celsius Holdings is one company that threatens Monster's growth prospects (
NASDAQ:CELH
). The company's “functional beverage” drinks have been attracting consumers in a big way in recent years. With a focus on caffeine and other stimulants, the company is competing directly with Monster and RedBull, among other categories (e.g., they offer non-caffeine drinks, competing with
the soda market).
Over the past two years, the number of stores selling Celsius' beverages grew by approximately 15,000 to 150,000, with sales in 2020, 2021, and 2022 growing by 74%, 140%, and 108%, respectively. For Fiscal 2023, sales are expected to have grown by 99% to $1.30 billion, with the company having a massive runaway for growth ahead, as it has yet to establish an international presence.
Thus, while Monster is not going anywhere anytime soon, with sales likely to keep growing for some time, it appears that the company is maturing in the face of upcoming competition. Combined with the fact that Monster shares are trading at a rather hefty 36.6x 2023's expected earnings, it's evident that the company's market-beating total return track record may not be sustainable in the years to come.
The Takeaway
Overall, Monster Beverage has undeniably delivered jaw-dropping market-beating returns since the 90s, outshining even the most celebrated tech giants like Apple, Microsoft, and Nvidia. However, looming competition, notably from Celsius, poses a potential threat to future growth. While Monster is likely going to remain a strong player in the energy drinks market, its hefty valuation and rising competition suggest that a more cautious outlook is prudent.
Disclosure
Intel on Thursday forecast revenue for the first quarter that could miss market estimates by more than $2 billion, as it grapples with uncertain demand for its chips used in the traditional server and personal computer markets.
Artificial intelligence (AI) is Wall Street’s new obsession, with companies discussing the technology in a snowballing fashion and helping to keep sentiment positive.
Growth investors focus on stocks that are seeing above-average financial growth, as this feature helps these securities garner the market's attention and deliver solid returns. However, it isn't easy to find a great growth stock.