Key Points
Monster Beverage has averaged annualized gains of 18% over the past 15 years.
Its stock seems richly priced at recent levels.
Monster Beverage (NASDAQ: MNST) has been a monster stock performer in the past, averaging annual gains of nearly 18% over the past 15 years. Over the past 25 years, it has averaged annual gains of 25%, enough to turn a $10,000 investment into $2.8 million.
So should you jump in now, hoping for some outsize gains of your own? I don't think so.
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Why pause on Monster Beverage?
My main concern is its valuation, as the stock seems somewhat overvalued. For example, its recent forward price-to-earnings (P/E) ratio of 34 is above its five-year average of 31. Its price-to-sales ratio of 9.5 is also above its five-year average of 8.4.
Another concern is the fact that it faces increasing competition from the likes of PepsiCo and Keurig Dr Pepper, which are also offering their own energy beverages. Then there's inflation, which is causing plenty of people to pull back on their discretionary spending a bit.
On top of that, Wall Street analysts have shrunk their estimates of Monster's revenue growth for 2027 to 10%.
Why you might invest in Monster Beverage
There are reasons to invest in Monster Beverage -- at least, if it pulls back to a lower price. For one thing, the fact that it has grown into an $88 billion enterprise suggests that the company knows how to make and execute smart strategies.
Its business model is appealing, too, because it's capital-light. Monster has a multiyear distribution deal with Coca-Cola, and generally prefers to make concentrates and sell them to bottling and distribution partners rather than owning and operating a costly bottling and distribution system of its own.
Take a closer look at Monster to see what you think. You might want to buy a few shares if you plan to hang on to them for a long time, or you could play it safer, keep it on your watch list, and hope for a lower entry price down the road.
Selena Maranjian has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Monster Beverage. The Motley Fool has a disclosure policy.