Monster (MNST)

Energy drink company Monster Beverage (NASDAQ:MNST) missed Wall Street’s revenue expectations in Q1 CY2025, with sales falling 2.3% year on year to $1.85 billion. Its non-GAAP profit of $0.47 per share was 2.2% above analysts’ consensus estimates.

Company Overview

Founded in 2002 as a natural soda and juice company, Monster Beverage (NASDAQ:MNST) is a pioneer of the energy drink category, and its Monster Energy brand targets a young, active demographic.

These companies' performance is influenced by brand strength, marketing strategies, and shifts in consumer preferences. Changing consumption patterns are particularly relevant and can be seen in the rise of cannabis, craft beer, and vaping or the steady decline of soda and cigarettes. Companies that spend on innovation to meet consumers where they are with regards to trends can reap huge demand benefits while those who ignore trends can see stagnant volumes. Finally, with the advent of the social media, the cost of starting a brand from scratch is much lower, meaning that new entrants can chip away at the market shares of established players.

Competitors that offer energy drinks or alternatives to energy drinks include Rockstar Energy from PepsiCo (NASDAQ:PEP), Coca-Cola Energy and Full Throttle from Coca-Cola (NYSE:KO), and Celsius (NASDAQ:CELH).

A company’s long-term sales performance can indicate its overall quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years.

With $7.45 billion in revenue over the past 12 months, Monster is one of the larger consumer staples companies and benefits from a well-known brand that influences purchasing decisions.

As you can see below, Monster’s sales grew at a decent 8.6% compounded annual growth rate over the last three years. This shows its offerings generated slightly more demand than the average consumer staples company, a helpful starting point for our analysis.

This quarter, Monster missed Wall Street’s estimates and reported a rather uninspiring 2.3% year-on-year revenue decline, generating $1.85 billion of revenue.

Looking ahead, sell-side analysts expect revenue to grow 9.6% over the next 12 months, similar to its three-year rate. This projection is commendable and indicates the market sees success for its products.

Monster has best-in-class unit economics for a consumer staples company, enabling it to invest in areas such as marketing and talent. As you can see below, it averaged an elite 54.1% gross margin over the last two years. That means Monster only paid its suppliers $45.90 for every $100 in revenue.

This quarter, Monster’s gross profit margin was 56.5%, up 2.4 percentage points year on year and exceeding analysts’ estimates by 3.4%. Monster’s full-year margin has also been trending up over the past 12 months, increasing by 1.1 percentage points. If this move continues, it could suggest better unit economics due to some combination of stable to improving pricing power and input costs (such as raw materials).

Monster has been a well-oiled machine over the last two years. It demonstrated elite profitability for a consumer staples business, boasting an average operating margin of 27.3%. This result isn’t surprising as its high gross margin gives it a favorable starting point.

Analyzing the trend in its profitability, Monster’s operating margin decreased by 2.1 percentage points over the last year. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability.

In Q1, Monster generated an operating profit margin of 30.7%, up 2.2 percentage points year on year. Since its gross margin expanded more than its operating margin, we can infer that leverage on its cost of sales was the primary driver behind the recently higher efficiency.

We track the change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

Monster’s solid 9.5% annual EPS growth over the last three years aligns with its revenue performance. This tells us its incremental sales were profitable.

In Q1, Monster reported EPS at $0.47, up from $0.42 in the same quarter last year. This print beat analysts’ estimates by 2.2%. Over the next 12 months, Wall Street expects Monster’s full-year EPS of $1.66 to grow 13%.

Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.

Monster has shown terrific cash profitability, driven by its lucrative business model that enables it to reinvest, return capital to investors, and stay ahead of the competition. The company’s free cash flow margin was among the best in the consumer staples sector, averaging 21.5% over the last two years.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

Monster’s five-year average ROIC was 37.2%, placing it among the best consumer staples companies. This illustrates its management team’s ability to invest in highly profitable ventures and produce tangible results for shareholders.

Companies with more cash than debt have lower bankruptcy risk.

Monster is a profitable, well-capitalized company with $1.90 billion of cash and $199.1 million of debt on its balance sheet. This $1.70 billion net cash position is 2.9% of its market cap and gives it the freedom to borrow money, return capital to shareholders, or invest in growth initiatives. Leverage is not an issue here.

It was encouraging to see Monster beat analysts’ gross margin expectations this quarter. On the other hand, its revenue missed significantly. Overall, this quarter could have been better. The stock traded down 2.4% to $58.66 immediately after reporting.

Updated: May 15, 2025 at 11:06 PM EDT

The latest quarterly earnings matters, sure, but we actually think longer-term fundamentals and valuation matter more. Investors should consider all these pieces before deciding whether or not to invest in Monster.

Monster is a rock-solid business worth owning. For starters, its revenue growth was decent over the last three years, and analysts believe it can continue growing at these levels. On top of that, its impressive operating margins show it has a highly efficient business model, and its powerful free cash flow generation enables it to stay ahead of the competition through consistent reinvestment of profits.

Monster’s P/E ratio based on the next 12 months is 33.2x. Some good news is baked into the stock given its multiple, but we’ll happily own Monster as its fundamentals really stand out. Investments like this should be held patiently for at least three to five years as they benefit from the power of long-term compounding, which more than makes up for any short-term price volatility that comes with relatively high valuations.

Wall Street analysts have a consensus one-year price target of $61.37 on the company (compared to the current share price of $62.30).

Want to invest in a High Quality big tech company? We’d point you in the direction of Microsoft and Google, which have durable competitive moats and strong fundamentals, factors that are large determinants of long-term market outperformance.

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