In this article we are going to perform a business health analysis of Monster Beverage using our custom scoring model to assess whether the company presents an appealing opportunity for blue chip value investors that are looking to buy great businesses at great prices.

Monster Beverage Corporation (NASDAQ: MNST) is a leading developer, marketer, and distributor of energy drinks and alternative beverages. Headquartered in Corona, California, the company is best known for its flagship Monster Energy brand, which has become a global competitor in the fast-growing energy drink market. Originally founded in 1935 as Hansen’s, the company rebranded to Monster Beverage in 2012, reflecting its core product focus. Today, Monster’s product portfolio includes a wide variety of energy drinks and other beverages with distribution across more than 150 countries. The company benefits from a strategic partnership with The Coca-Cola Company, which holds a significant equity stake and supports global distribution. 

Margins: 5 of 5 possible points

Monster Beverages enjoys a strong median gross margin of 54% over the past four years. There is only a small amount of variation between a low value of 50% and a high value of 56%. For us, great businesses to invest in ideally have a gross margin of 40% or more, thus, Monster Beverages fits the bill. But it’s worth noting that this is not a singular or outstanding performance. In contrast, several of its close competitors have similarly high gross margins:

• Coca Cola: 60%
• PepsiCo: 54%
• ABInBev: 55%
• Keurig Dr Pepper: 55%

The median net margin over the past four years has been 22%, which is a high value again. We note a downward trend from a high value of 25% in 2021 to only 20% in 2024. Nevertheless, we can find a distinction between Monster Beverages and its competitors: From the four mentioned above only Coca Cola manages to achieve a similarly high net margin of more than 20% while the others only achieve between 9% and 12%. 

Earnings: 3 of 4 possible points

The net income of Monster beverage has varied between $1.2bn and $1.6bn in the last four years, but has been consistent, i.e. there were no losses. It has grown on average 6% per year and very strongly between 2022 and 2023 (+37%). The return on equity has a decent median of 20% over the same period. It has been growing from a low value of 17% in 2022 to a high value of 25% in 2024. 2024 is a year that deserves special attention because the return on equity kept growing even though net income was lower than in 2023. The reason is a sharp reduction in equity from $8.2bn in 2023 to just $6bn (-28%) via share buy backs, thereby artificially inflating the return on equity.

Expenses: 3 of 4 possible points

To assess expenses we are going to look at two ratios: SG&A expenses as a percentage of gross profit and capital expenditures as a percentage of earnings. Absolute expenses have consistently grown from $1.3bn in 2021 to $2.1bn in 2024. Measured as a percentage of gross profit the SG&A expense rate has a median of 49%, which is moderately high: ideally we would like to see values below 30% but up to 70% are acceptable. We also note that the expense rate has grown from 42% in 2021 to 52% last year.

In contrast to the SG&A expenses, capital expenditures are favorably low with a median of 17% of earnings spent. Looking at competitors, we find that only Coca Cola, Celsius and National Beverage have similarly low values, while other competitors like PepsiCo, ABInBev or Starbucks have capital expenditures of more than 50% of earnings. Historically, capital expenditures have been even lower, hitting a five year low in 2021. After that they saw a sudden jump and kept growing slowly – in absolute terms as well as in relation to earnings.

Debt and Equity: 5 of 6 possible points

Looking at retained earnings we are primarily interested in a positive growth trend. Unfortunately, retained earnings for Monster Beverage show an overall slight negative trend of -6% average annual decline that is somewhat obfuscated by the significant year-to-year variability.

On the debt side Monster Beverage really shines with stellar performance. Total liabilities in relation to equity have an incredibly low median value of 0.12. And it has been consistently low through the recent past. To fully appreciate how small that level of debt is, we can compare it to a few other companies we have analyzed recently:

• Coca Cola, a close competitor has a median of 0.9
• Adobe, an asset-light software company has a median of 0.33
• BASF, a distressed German chemicals producer has a median of 1.13
• And Ferrari, the Italian luxury car manufacturer has a median of 1.84

The long term debt to earnings ratio is even more impressive: A median of 0. And in fact, 2024 was the first year that the company had any long term debt on its balance sheet. If we just zoom in on this year, we still find a favorable low ratio of 0.25.

In summary, both values are exceptionally good results: For the total liabilities to equity ratio a value below 0.8 is considered a great performance and for the long term debt to earnings ratio a value below 4 is desirable because it means a company could pay back its debt with less than four years of earnings.

Verdict

All around good performance and a great business to invest in when the price is right.

Using our custom scoring model for business health, Monster Beverage achieves 16 out of 19 total points, giving it a score of 84%. From the 105 companies that we are currently monitoring, only 8 achieve a higher score. It achieves full scores on margins and is missing a single point in each of the other 3 categories:

• A moderate return on equity reduces the earnings score
• Moderate SG&A expenses reduce the expenses score
• Negative retained earnings growth reduces the equity and debt score

Overall, we see a rather stable performance, but we have to note the slow growth in expenses and the soft decline in margins as well as the aggressive share buybacks that affect the stability and expressiveness of certain key figures.

The full table with performance metrics and scores is shown below.

Performance indicator	Metric	Value	Score
Gross margin	Median	53.6%	2
Gross margin	Coefficient of variation	4.5%	1
SG&A expense rate	Median	49.3%	1
Net income	Growth	5.8%	1
Net income	Consistency	yes	1
Net margin	Median	21.5%	2
Long term debt to earnings ratio	Median	0.00	2
Total liabilities to equity ratio	Median	0.12	2
Retained earnings	Growth	-5.5%	0
Share buybacks	Existence	yes	1
Return on equity	Median	20.4%	1
CAPEX to earnings	Median	-16.1%	2
Total			16/19

Last year, we took a look at the financial health of Coca Cola, another large beverage company and found a very similar performance. You can find the full analysis here.

Disclaimer: The content on this page is for informational and educational purposes only and does not constitute financial, investment, or trading advice. All opinions expressed are solely those of the author. There are risks associated with investing in securities, including the loss of invested capital. Past performance is not a guarantee or predictor of future results. The author is not responsible for any losses incurred as a result of the information provided.