Monster has had an impressive run over the past six months. While the S&P 500 has been flat, the stock has returned 20.7% and now trades at $63.58. This run-up might have investors contemplating their next move.
Is now still a good time to buy MNST? Or is this a case of a company fueled by heightened investor enthusiasm? Find out in our full research report, it’s free.
Why Is MNST a Good Business?
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 a key measure of profitability. Think of it as net income - the bottom line - excluding the impact of taxes and interest on debt, which are less connected to business fundamentals.
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 27.3%. 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 22% 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? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).
Monster’s five-year average ROIC was 38.1%, 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're bullish on Monster, and with its shares topping the market in recent months, the stock trades at 33.8× forward P/E (or $63.58 per share). Is now a good time to initiate a position? See for yourself in our in-depth research report, it’s free.
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