Companies that consistently give strong financial performances often see steady share price appreciation, and that can eventually lead to a stock split. In that context, stock splits can help investors identify companies with sound fundamentals and a proven ability to create value for shareholders.
Hansen Natural is an excellent example. In 2002, the juice and soda company branched into energy drinks, and it sold those beverages under the brand name Monster. That decision was a stroke of genius in hindsight. The company has since changed its name to Monster Beverage(NASDAQ: MNST), and expansion into energy drinks led to such significant share price appreciation that the company has split its stock five times in the last 20 years, as detailed below:
- August 2005: 2-for-1 stock split.
- July 2006: 4-for-1 stock split.
- February 2012: 2-for-1 stock split.
- November 2016: 3-for-1 stock split.
- March 2003: 2-for-1-stock split.
Shares of Hansen Natural/Monster Beverage soared 65,610% over the last two decades, making it the best-performing stock in the S&P 500(SNPINDEX: ^GSPC) during that time. For context, $5,000 invested in the company in December 2003 would now be worth nearly $3.3 million.
Even so, Monster Beverage is still a worthwhile investment today, and now is as good a time as any to buy a few shares. The S&P 500 is just one percentage point away from bull market territory, a threshold typically preceded by substantial upward momentum in stocks over a sustained time period.
Here's what investors should know about Monster Beverage.
Monster is a market leader in energy drinks
Monster Beverage primarily earns revenue through energy drinks, including premium brands like Monster Energy and Reign and more affordable products like Predator and Fury. But the company also makes money from various alcoholic beverages, mostly craft beers and hard seltzers acquired through its purchase of CANarchy in February 2022. However, Monster recently expanded into flavored malt beverages (The Beast Unleashed), and it will launch a line of hard teas in 2024 (Nasty Beast Hard Tea).
Monster has two important competitive advantages. First, the company has built immense brand authority through effective marketing, and it has maintained that brand authority through regular innovation. The company added more than a dozen products to its energy drink portfolio in the third quarter alone. Second, an exclusive partnership with Coca-Cola positions Monster as the only energy drink brand with access to the largest beverage distribution system in the world.
Those advantages have helped Monster achieve a leadership position in many geographies. Red Bull is the most popular energy drink brand in the U.S., but when all brands are included, Monster Beverage Corporation is the market leader in the U.S. (the largest economy in the world). The company also leads the market in energy drink sales in Japan (the third-largest economy in the world). , South Korea, and parts of Latin America
Monster is still growing at a steady clip
Monster reported solid financial results in the third quarter. Revenue increased 14% to $1.9 billion despite a 180-basis-point headwind from unfavorable foreign exchange rates. That top-line figure reflects sales increases of 13% and 58% in energy drinks and alcoholic beverages, respectively.
Growth was particularly pronounced outside of North America. Monster continued to gain market share across Europe, including the United Kingdom, France, and Germany (the fourth-largest economy in the world). And management is optimistic about future growth prospects in China (the second-largest economy in the world).
Monster also reported GAAP net income of $0.43 per diluted share, up 41% from the prior year. That bottom line momentum can be attributed to gross margin expansion brought on by pricing power, as well as cost control efforts and share repurchases. Investors can expect similar results in the future.
Monster stock trades at a reasonable price
Global energy drink sales are forecast to increase at 8.3% annually through 2030. But Monster could grow more quickly for two reasons. First, the company has historically outpaced the industry average in energy drink sales, as evidenced by its leading market share, and its strong brand should keep that momentum alive in the years ahead.
Second, its alcoholic beverages business is growing much more quickly than its energy drinks business, and that trend should continue as the company leans into new flavored malt beverages and hard tea products. Monster expects to achieve national distribution with The Beast Unleashed by the end of 2023, and management is targeting similar coverage with Nasty Beast Hard Tea in the first half of 2024.
Collectively, Monster has a good shot at annual revenue growth ranging from high single-digits to low double-digits through the end of the decade. That makes its current valuation of 8.6 times sales appear reasonable, especially when the three-year average is 9 times sales. To that end, investors should feel comfortable buying a small position in this stock-splitgrowth stock today.
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Trevor Jennewine has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Monster Beverage. The Motley Fool recommends the following options: long January 2024 $47.50 calls on Coca-Cola. The Motley Fool has a disclosure policy.
