We believe that Monster Beverage stock is a better pick than its peer – Keurig Dr Pepper stock (NASDAQ: KDP). MNST stock trades at a higher multiple of 7x sales, versus 3.3x revenues for KDP. This gap in valuation makes sense, given Monster Beverage’s superior revenue growth, profitability, and financial position. There is more to the comparison, and in the sections below, we discuss why we think MNST will outperform KDP in the next three years. We compare a slew of factors, such as historical revenue growth, returns, and valuation in an interactive dashboard analysis – Keurig Dr Pepper vs. Monster Beverage, parts of which are summarized below.
1. Keurig Dr Pepper Stock Has Fared Better Than Monster Beverage
KDP stock has witnessed gains of 35% from levels of $30 in early January 2021 to around $40 now, vs. an increase of about 10% for MNST from $45 to $50 over the same period. In comparison, the broader S&P500 saw 45% gains over this roughly four-year period. However, the increase in these stocks has been far from consistent. Returns for KDP stock were 17% in 2021, -1% in 2022, and -4% in 2023, while MNST stock saw returns of 4%, 6%, and 13% over these years, respectively. In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 24% in 2023 — indicating that KDP and MNST underperformed the S&P in 2021 and 2023.
In fact, consistently beating the S&P 500 — in good times and bad — has been difficult over recent years for individual stocks; for heavyweights in the Consumer Staples sector including WMT, PG, and COST, and even for the megacap stars GOOG, TSLA, and MSFT. In contrast, the Trefis High Quality Portfolio, with a collection of 30 stocks, has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride, as evident in HQ Portfolio performance metrics.
2. But Monster Beverage Has Seen Better Revenue Growth
Keurig Dr Pepper saw its sales rise at an average annual rate of 8.5% from $11.6 billion in 2020 to $14.8 billion in 2023, while Monster Beverage’s sales grew at an average rate of 15.8% from $4.6 billion to $7.1 billion over the same period.
Keurig Dr Pepper’s revenue growth benefited from at-home demand for K-Cups due to a sudden surge in at-home consumption during the pandemic phase. While the company has benefited from pricing gains in recent years, its U.S. coffee segment sales have been trending lower lately, amid a weakening consumer spending environment and a shift to lower price point alternatives. The company has the edge over other beverage companies as its coffee segment remains an important long-term growth driver, with people moving away from carbonated drinks and replacing them with other beverages. That said, Keurig Dr Pepper’s refreshment beverages business has been doing better lately.
Monster Beverage’s revenue growth has been driven by a solid demand for its energy drinks. New product launches and expansion in international markets along with a pricing growth has also bolstered its overall top-line expansion lately. For perspective, its average sales per case (24 eight-ounce servings) declined from $9.06 in 2020 to $8.82 in 2022 but saw a sharp rebound to $9.01 in 2023. The total number of cases sold surged by 52% between 2020 and 2023. Monster Beverage will likely continue to see its sales trend higher, led by volume and pricing gains.
3. Monster Beverage Is More Profitable
Keurig Dr Pepper’s operating margin of 21.6% in 2023 declined marginally from 21.9% in 2020, while Monster Beverage’s operating margin contracted from 35.5% to 27.4% over this period. This can be attributed to supply chain constraints and falling prices for Monster Beverage. This situation reversed in 2023, with support from pricing actions and the company’s decreased reliance on imported cans. Looking at the last twelve-month period, Monster Beverage’s operating margin of 27.3% fares slightly better than 23% for Keurig Dr Pepper.
4. Monster Beverage Also Offers Lower Financial Risk
Looking at financial risk, Monster Beverage has an edge over Keurig Dr Pepper. Its 1% debt as a percentage of equity is much lower than 32% for the latter. Moreover, its 19% cash as a percentage of assets is significantly higher than 1% for Keurig Dr Pepper, implying that Monster Beverage has a better debt position and more cash cushion.
5. The Net of It All
We see that Monster Beverage has demonstrated better revenue growth, is more profitable, and has a better financial position. Looking at the prospects, we believe MNST is still the better choice of the two, despite its rising valuation multiple. KDP stock trades at 3.3x trailing revenues, versus the 3.5x average P/S ratio seen over the last five years. In contrast, MNST stock trades at 7x revenues, versus the 5x average P/S ratio seen over the last five years. This can be attributed to strong sales growth and a rebound in operating margins lately, a trend expected to continue in the near-term. Looking forward, Monster Beverage will likely continue to enjoy a higher valuation multiple, given its recent pricing actions and focus on cutting costs. There has been a robust growth in demand for energy drinks, evident from Monster Beverage’s 52% growth in number of cases sold since 2020. This trend is expected to continue, with the company’s new product launches and expansion in international markets.
While MNST may outperform KDP in the next three years, it is helpful to see how Keurig Dr Pepper’s peers fare on metrics that matter. You will find other valuable comparisons for companies across industries at Peer Comparisons.
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