Monster (MNST) is currently undervalued. This past week, the company announced its Q2 report, which fell short of analyst expectations. As a result, the stock dropped 7% since the announcement. Combined with a 20% drop over the past year-to-date, the stock is now near its 52-week low, making it a bargain.
Here’s my investment thesis:
- There is consistent demand among key demographics, especially Gen Z and people in their 20s. Monster is popular for various activities like partying, working out, and even among office workers who need an energy boost.
- Energy drinks, particularly those with zero sugar and zero calories, are less common but growing. These products are perceived as less harmful, which might encourage more consumption. Past legal issues related to energy drinks are behind us, with no recent harmful news.
- Caffeine is addictive, and the taste of Monster creates strong brand loyalty. Once consumers find a preferred energy drink, they tend to stick with it due to positive past experiences.
- Even if a recession occurs, beverages like Monster are relatively resilient. Consumers will still buy it, as it’s affordable and offers a boost associated with a good past experience when an energy kick was needed. The drink costs around $1.50, and its appeal remains strong despite economic fluctuations, so reduced “household income” will not affect its YoY growth.
- Despite missing analysts’ estimates, Monster is financially healthy and growing steadily. Revenues and net income have increased relative to costs.
The stock price is margin of safety per excellence, especially for a resilient business that grew year after year and goes under the radar for not appearing as often on front news, which minimizes the price inflation of the stock.
Beware that $MNST did an acquisition in 2023 and it also bought back shares based on a Board Resolution granted in 2022 which they completed now in 2024, so that’s why cash is lower YoY.
Lastly, Monster main competitor is RedBull, which isn’t listed anywhere, so this is the only accurante stock that reflects the energy drinks market. Rockstar as well isn’t listed as it’s part of PepsiCo so every sort of investment in the energy drinks market is primarily done in $MNST – so there’s a sort of “market concentration” investment-wise in a single stock. The stock is also listed in Nasdaq (not sure why lol), which also attracts investors that tend to allocate to Nasdaq indexes.