Beyond Monster Beverage Corporation's (NASDAQ:MNST) Growth

Monster Beverage Corporation (NASDAQ:MNST) continues to post impressive revenue growth and its prospects have never been brighter. I will conduct a high level fundamental analysis on the company by looking at its past financials and growth prospects moving forward.

Monster Beverage Corporation, through its subsidiaries, develops, markets, sells, and distributes energy drink beverages, soda, and its concentrates in the United States and internationally. Since starting in 1985 in United States, the company has now grown to a market cap of US$32.40B.

The company is growing incredibly fast, with a year-on-year revenue growth of 10.48% over the past financial year , and a bottom line growth of 15.15%. Over the past five years, sales has increased by 10.81%, lifted by previous years of higher capital expenditure, which most recently reached US$83.44M. MNST has been reinvesting more into the business, leading to expected return on investment of 22.80% in the next three years, according to the consensus of broker analysts covering the stock. Net income is expected to reach US$1.01B in the upcoming year, exceeding the industry average growth rate of 8.73%. In addition, over the next five years, earnings are expected to rise at an annual rate of 12.75% on average. These figures illustrate MNST's strong track record of producing profit to its investors, with an efficient approach to reinvesting into the business, and a buoyant future compared to peers in the sector.

Limiting your downside risk is an important part of investing, and financial health is a key determinant on whether MNST is a risky investment or not. With zero-debt on its balance sheet, MNST doesn't have to worry about maintaining a high level of cash to meet debt obligations and paying near-term interest costs. These constraints can be a burden for high-growth companies as it prevents them from reinvesting cash from operations back into the business to fuel further growth. The value of financial flexibility may outweigh the benefit of lower cost of capital for MNST, which debt funding usually provides compared to issuing new equity. However, the company has plenty of headroom for borrowing, and the expected growth, to have debt funding as an option in the future. MNST has high near term liquidity, with short term assets (cash and other liquid assets) amply covering upcoming one-year liabilities, as well as long-term commitments. A reason I like MNST as a business is its low level of fixed assets on its balance sheet (10.14% of total assets) . When I think about the worst-case scenario in order to assess the downside, such as a downturn or bankruptcy, physical assets and inventory will be hard to liquidate and redistribute back to investors. MNST has virtually no fixed assets, which minimizes its downside risk.

MNST currently trades at US$55.62 per share. At 566.4 million shares, that's a US$32.40B market cap - which is expensive for a company that has a 5-year cumulative average growth rate (CAGR) of 10.16% (source: analyst consensus). With an upcoming 2018 free cash flow figure of US$997.96M, the target price for MNST is US$38.25. Therefore, the stock is trading at a premium. Moreover, comparing MNST's current share price to its peers based on its industry and earnings level, it's overvalued by 63.51%, with a PE ratio of 38.41x vs. the industry average of 23.49x.

MNST's investment thesis is a positive one. The stock is appealing because of its strong fundamentals - financial health, future outlook and track record. However, at its current share price, right now may not be the best time to invest. For all the charts illustrating this analysis, take a look at the Simply Wall St platform, which is where I've taken my data from.

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Simply Wall St analyst Simply Wall St and Simply Wall St have no position in any of the companies mentioned. This article is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.