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Investors Are Energized, Not Scared Off, By Monster's Fast Growth

Monster Beverage stock analysis

Do shares of Monster Beverage Corp. (NASDAQ: MNST) look scary at their current levels?

The stock rocketed to a new high of $60.27 on May 5, as investors were energized by the company’s better-than-expected first-quarter results. MarketBeat’s Monster Beverage earnings data show the company’s performance rebounding after disappointing results in the previous quarter. 

In the first quarter, Monster reported the following changes in net sales for its four business units:

  • Monster Energy Drinks segment: +11.2%
  • Strategic Brands segment: -6.7%
  • Alcohol Brands segment: +204.4%
  • Other segment: -22.2%

Strategic brands includes beverages acquired from the Coca-Cola Company (NYSE: KO) in 2015, along with more affordable brands. That category includes Monster Energy Ultra, Java Monster, Juice Monster, Monster Dragon Tea, Reign Total Body Fuel, and Predator.

The company said foreign exchange rates had a negative impact on the Monster Energy Drinks and Strategic Brands segments. 

However, price increases helped offset some other challenges. 

Earnings Growing Again

The company boasted a return to earnings growth, after several quarters of declines in 2022. Wall Street expects the company to earn $1.54 a share this year, up 37%. Next year, that’s seen rising by another 16% to $1.78 a share. Both estimates were revised higher recently.

So what about the current trading levels? Is the stock a buy? 

To answer that, let’s dissect the Monster Beverage chart. While a line view will show you the overall trends, either a candlestick or line view will show you more granular daily or weekly price movements. Using one of those views, you can easily see the uptrend that began on April 20; shares are up 11.66% in the past month. 

Monster Beverage stock had been rangebound between $52 and $53 from early December through late March. The stock cleared a buy point above $52.73 on March 31, then pulled back, finding support above its 50-day moving average before notching 10 days in a row of upside trade, beginning on April 20. 

A Gap Higher Can Mean More Gains

The stock’s current price-to-earnings ratio is 48, so it may seem like it’s in “priced to perfection” territory. However, a big price move higher is generally the catalyst for more gains. That kind of move shows that institutional owners have conviction in the stock. 

Despite some short sellers in the mix, who got squeezed as the price rose, the bulk of upside action is due to big investors initiating or adding to a position. 

Following the May 5 gap-up, Monster Beverage stock pulled back slightly, but shares are still trading 11% above their 50-day average, and 2.2% above their 10-day line. A moderate pullback after a gap-up is normal, as investors who bought at lower prices take some profits. However, with a stock like Monster Beverage, in which the institutions have conviction, a pullback to the 50-day line, or even a shorter-term average, can offer an opportunity to buy.

This is a company that’s intent to remain in growth mode. Monster has never paid a regular dividend, but when shares split 2-for-1 on March 28, shareholders of record as of March 13 received a special dividend of one additional share of common stock for each then-held share. 

Monster Beverage institutional ownership data show the buyers are in control. In the past 12 months, 622 institutional buyers accounted for $4 billion in inflows, versus 384 institutional sellers accounting for $1.81 billion in outflows. 

Monster Beverage analyst ratings show a consensus view of “moderate buy.” Since the first-quarter report, 10 analysts boosted their price targets on the stock. 

Industry Peers Performing Well

Monster Beverage has something else going for it: It’s categorized in the non-alcholic beverages sub-industry within the consumer staples sector. That industry is home to other leading stocks, such as smaller energy-drink rivals Celsius Holdings Inc. (NASDAQ: CELH) and Vita Coco Company (NASDAQ: COCO), which, like Monster, are outperforming the broader market.

It’s a good sign when a leading stock has peers in similar businesses that are also doing well. 

An industry group is represents a particular slice of the broader economy. When big investors like what they’re seeing in that economic segment, they generally move money into more than one company, which has the effect of lifting the entire sub-sector higher. That’s good news for all the industry stocks boasting strong sales and earnings growth. 

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