‘Monster Energy’ is one of the commonly found energy beverages on supermarket shelves. You may not be able to immediately recognise the brand (especially for those of you who do not consume energy drinks), but I’m sure after looking at the image below, you’ll recall seeing the product before:

Monster Beverage Corporation's 'Monster Energy' Drinks. Photo by Christian Wiediger on Unsplash
Monster Beverage Corporation’s ‘Monster Energy’ Drinks. Photo by Christian Wiediger on Unsplash

Monster Beverage Corporation (NASDAQ:MNST) is in the business of developing, marketing, selling, and distributing energy drink beverages, as well as concentrates for energy drink beverages.

The company has three operating and reporting segments, namely:

(i) Monster Energy drinks and Reign Total Body high-performance energy drinks, where its range of products are sold in 148 countries and territories globally,

(ii) Strategic brands segment, which comprises of various energy drink brands acquired from The Coca Cola Company in 2015; its products are currently sold in 106 countries and territories globally,

(iii) Other segments, which comprises of certain products sold by American Fruits and Flavors LLC to independent third-party customers.

As for the company’s customer segments, as at the end of financial year 2019 (ended 31 December 2019), they are as follows:

  • 58% – US full service bottlers/distributors
  • 33% – International full service bottlers/distributors
  • 7% – Club stores, mass merchandisers, and e-commerce retailers
  • 1% – Retail grocery, specialty chains, and wholesalers
  • 1% – Others

In the remainder of today’s post about Monster Beverage Corporation, you will read about its historical financial performance and debt profile (over a 5-year period), its key financial performance for the first half of the current financial year (compared against the same period last year), and finally, whether or not at its current share price, is the company considered ‘cheap’ or ‘expensive.’

Let’s begin…

Historical Financial Performance of Monster Beverage Corporation between FY2015 and FY2019

In this section, you will find the company’s historical financial performance over a 5-year period – between FY2015 and FY2019:

Total Revenue and Net Profit (US$’mil):

FY2015FY2016FY2017FY2018FY2019
Total Revenue
(US$’mil)
$2,723m$3,049m$3,369m$3,807m$4,201m
Net Profit
(US$’mil)
$547m$713m$821m$993m$1,018m

Monster Beverage Corporation's Total Revenue and Net Profit between FY2015 and FY2019

One thing I like about the company is its improving top- and bottom-line over the past 5 years I have looked at, as well as the fact that both its financial statistics have saw year-on-year (y-o-y) improvements every single year.

Between FY2015 and FY2019, its total revenue grew from US$2,723m (in FY2015) to US$4,201m (in FY2019), a compound annual growth rate (CAGR) of 9.1%; its net profit went up from US$547 (in FY2015) to US$1,018m (in FY2019), a CAGR of 13.2%. In my personal opinion, its CAGR for both its revenue and net profit have been impressive.

Gross and Net Profit (%):

The following table is Monster Beverage Corporation’s gross and net profit margins I’ve computed:

FY2015FY2016FY2017FY2018FY2019
Gross Profit
Margin (%)
60.0%63.7%63.5%60.3%60.0%
Net Profit
Margin (%)
20.1%23.4%24.4%26.1%24.2%

Monster Beverage Corporation's Gross and Net Profit Margin between FY2015 and FY2019

While its net profit margin have been trending up steadily (with the exception of FY2019), its gross profit margin have moved in the opposite direction in the same time period, due to its increasing cost of sales.

Return on Equity (%):

In layman terms, Return on Equity (often known as RoE for short, and expressed in percentage terms) is the amount of profit a company is able to generate for every dollar of shareholders’ money it uses in its businesses. For instance, if the RoE reported by a company is 15.0%, it means the company is able to generate a $15 profit for every $100 of shareholders’ money it uses.

With that, let us now take a look at Monster Beverage Corporation’s RoE over a 5-year periods which I’ve computed:

FY2015FY2016FY2017FY2018FY2019
Return on
Equity (%)
11.4%21.4%21.1%27.5%24.4%

Monster Beverage Corporation's Return on Equity between FY2015 and FY2019

While its RoE have fluctuated over the last 5 years, but it has stayed above 20.0% in 4 out of 5 years. Personally, I am happy to invest in a company that is able to maintain its RoE at above 15.0% consistently, so Monster Beverage Corporation fulfils this criteria of mine.

Dividend Payout to Shareholders:

The management did not declare any dividend payouts to its shareholders over the 5 year period I have looked at.

Debt Profile of Monster Beverage Corporation between FY2015 and FY2019

Over a 5-year period, Monster Beverage Corporation does not have any borrowings – something I desire as my preference is to invest in companies with very little or no debt.

Key Highlights of Monster Beverage Corporation’s 1H FY2020 Results (vs. 1H FY2019)

On 04 August 2020, Monster Beverage Corporation released its financial results for the first half of the financial year 2020 (i.e. 1H FY2020 ended 30 June 2020.)

In this section, let us take a look at some of the key financial statistics, compared against the same time period last year (i.e. 1H FY2019 ended 30 June 2019):

1H FY20191H FY2020% Variance
Total Revenue
(US$’mil)
$2,050m$2,156m+5.2%
Net Profit
(US$’mil)
$553m$590m+6.7%
Gross Profit
Margin (%)
60.2%60.2%
Net Profit
Margin (%)
27.0%27.4%

Despite the company’s second quarter results being adversely impacted by the ongoing Covid-19 pandemic (where its total revenue edged down 0.9% on a quarter-on-quarter basis, as its sales in the Strategic Brands segment declined due to lockdowns in larger revenue generating countries, along with unfavourable foreign exchange rates impacting its Monster Energy drinks segment), on a y-o-y basis, both its revenue and net profit still manage to see positive growth.

The same goes for its net profit margin, which went up by 0.4 percentage points compared to the same time last year.

Looking at the remaining quarters of the current financial year, my personal take is that its results will be a weaker one compared to last year as the continued rise in the number of Covid-19 cases globally may lead to governments around the world implementing various degrees of lockdowns, or movement restrictions, thereby affecting the sales volume of Monster Beverage Corporation’s energy drinks. Also, I am of the opinion that its full-year results for the current financial year 2020 will be a weaker one compared to 2019.

Is Monster Beverage Corporation’s Current Share Price Considered ‘Cheap’ or ‘Expensive’?

One of the ways I use to find out whether or not a company’s current share price is considered ‘cheap’ or ‘expensive’ is to compare its current valuations (based on its current share price) against its average.

The following is Monster Beverage Corporation’s P/E and P/B ratios (I’ve omitted dividend yields as the company did not declare any dividends over the 5-year period I’ve looked at), along with its average that I’ve computed:

FY2015FY2016FY2017FY2018FY2019Average
P/E
Ratio
52.337.344.628.031.338.7
P/B
Ratio
6.37.59.27.48.27.7

As at 02 October 2020, Monster Beverage Corporation is trading at US$79.55, and based on its current traded price, its valuations are as follows:

P/E ratio: 36.7
P/B ratio: 9.9

Comparing its current valuations against its 5-year average, no doubt its current P/B ratio is higher than its average, but its current P/E ratio is lower than its average. As such, it seems that the current traded price of Monster Beverage Corporation is neither ‘cheap’ nor ‘expensive.’

In Conclusion

An improving set of financial results over the years, along with the company having no borrowings are reasons why it caught my eye. No doubt its current year performance is affected by the negative impacts brought about by the ongoing Covid-19 pandemic globally, but in my opinion it is only a temporary event which will pass in time to come.

The only real concern that I have about the company is its declining gross profit margin, which I will continue to keep a close watch on.

With that, I have come to the end of my writeup about the energy drinks company today. Do note that this writeup is meant for educational purposes only, and is by no means a buy or sell recommendation for the shares of the company. Please do your own due diligence before you make any investment decisions.

Disclaimer: At the time of writing, I am not a shareholder of Monster Beverages Corporation.

 

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