Key Points
Monster Beverage's share price growth will need to accelerate from the previous decade.
The company would need to prove its staying power.
Everyone's heard about stocks that have produced phenomenal returns and made investors millionaires. These include companies like Amazon (NASDAQ: AMZN) and Apple (NASDAQ: AAPL).
Typically, making a lot of money from your stock investments takes time. After all, these companies didn't turn a $10,000 investment into $1 million overnight. That's 100 times your initial investment.
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Monster Beverage (NASDAQ: MNST) has done well for shareholders over the last few years. If you invest $10,000 today, does it have the potential to turn that into $1 million?
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Past returns
Over the past 10 years, through Sept. 18, Monster Beverage's shares gained 263%. The company hasn't paid dividends, so that's the return that shareholders received. If you'd invested $10,000, your shares would be worth over $36,000 today.
Of course, that's far short of $1 million. But that's only over 10 years. Monster Beverage's stock generated a 14% annualized return. Earning that rate of return over 25 years results in a value of over $250,000.
By comparison, you'd have been better off investing in a low-cost S&P 500 (SNPINDEX: ^GSPC) index fund. The index returned 326% over a decade, including dividends. If you'd invested $10,000, you'd have nearly $43,000 today.
Required future return
A 14% annualized return is pretty good, but it's still insufficient to make you a millionaire in 25 years. What rate of return would you need?
Monster Beverage's shares would have to return over 20% annually over a quarter of a century. That's a significant increase from the stock's previous return.
That would also require the stock to return nearly double the S&P 500's historical rate. Over 25 years, the index returned 10.4% annually.
Can Monster Beverage make you a millionaire?
Monster Beverage has been a growth stock, and the last five years have been rewarding for shareholders. During this period, the stock gained 91.3%, edging out the S&P 500's 90.6%.
Monster Beverage's energy drinks have struck a chord with consumers. Its second-quarter sales grew 17.9% year over year to $2.5 billion, adjusted for foreign currency translation. Its major business, Monster Energy drinks, drove this growth, with the division's sales growing 19.3% year over year to $2.3 billion.
However, Monster Energy faces competition. Continued sales growth requires the company to stay a step ahead. Additionally, it's uncertain whether energy drinks have proven staying power, or if consumer tastes will shift to something else.
Hence, while the stock has done well lately, I wouldn't count on growth accelerating and the share price gain providing the necessary return to make your $10,000 investment turn into $1 million.
Lawrence Rothman, CFA has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon, Apple, and Monster Beverage. The Motley Fool has a disclosure policy.