Monster’s 29.6% return over the past six months has outpaced the S&P 500 by 18.5%, and its stock price has climbed to $77.31 per share. This was partly due to its solid quarterly results, and the run-up might have investors contemplating their next move.
Is now still a good time to buy MNST? Or are investors being too optimistic? Find out in our full research report, it’s free.
Why Are We Positive On MNST?
Founded in 2002 as a natural soda and juice company, Monster Beverage (NASDAQ: MNST) is a pioneer of the energy drink category, and its Monster Energy brand targets a young, active demographic.
1. Operating Margin Reveals a Well-Run Organization
Operating margin is an important measure of profitability accounting for key expenses such as marketing and advertising, IT systems, wages, and other administrative costs.
Monster has been a well-oiled machine over the last two years. It demonstrated elite profitability for a consumer staples business, boasting an average operating margin of 28%. This result isn’t surprising as its high gross margin gives it a favorable starting point.
2. Excellent Free Cash Flow Margin Boosts Reinvestment Potential
Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.
Monster has shown terrific cash profitability, driven by its lucrative business model that enables it to reinvest, return capital to investors, and stay ahead of the competition. The company’s free cash flow margin was among the best in the consumer staples sector, averaging 23.4% over the last two years.
3. Stellar ROIC Showcases Lucrative Growth Opportunities
Growth gives us insight into a company’s long-term potential, but how capital-efficient was that growth? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).
Monster’s five-year average ROIC was 37.3%, placing it among the best consumer staples companies. This illustrates its management team’s ability to invest in highly profitable ventures and produce tangible results for shareholders.
Final Judgment
These are just a few reasons why we think Monster is one of the best consumer staples companies out there, and with its shares topping the market in recent months, the stock trades at 35.3× forward P/E (or $77.31 per share). Is now a good time to initiate a position? See for yourself in our comprehensive research report, it’s free.
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