Bear Of The Day: Monster Beverage

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The Zacks Consumer Staples Sector currently ranks in the bottom 38% of all Zacks Sectors, undoubtedly a ranking that doesn’t inspire confidence.

Typically, an investor should target stocks within the top 50% of all Zacks Sectors.

Studies have shown that 50% of a stock's price movement can be attributed to the group it’s in, making it crucial to ensure that you target stocks in a thriving sector.

With the Consumer Staples sector residing in the bottom 50% of all Zacks Sectors, it further tells us that conditions are challenging for that sector's business currently, causing the analysts following that group to lower their estimates.

And, of course, investors never want to see earnings estimates go down.

One company in the sector, Monster Beverage Corporation (MNST - Free Report), currently carries a Zacks Rank #5 (Strong Sell) with an overall VGM Score of an F.

Let’s take a look at what’s landed the beverage titan in such an unfavorable ranking.
 

Growth Estimates

Analysts have been overwhelmingly bearish in their earnings outlook over the last several months, pushing the stock into a Zacks Rank #5 (Strong Sell).

Zacks Investment Research


Image Source: Zacks Investment Research

The Zacks Consensus EPS Estimate for MNST’s current fiscal year (FY22) resides at $2.29, penciling in a disheartening 11% Y/Y drop in earnings. And for the company’s upcoming quarterly print, earnings are forecasted to slip by nearly 5% year-over-year.
 

Valuation

Monster Beverage shares carry stretched valuation levels, further bolstered by its Style Score of an F for Value.

The company’s 38.6X forward earnings multiple is undoubtedly expensive, well above its five-year median of 33.1X and reflecting a staggering 92% premium relative to its Zacks Sector.

Zacks Investment Research

Image Source: Zacks Investment Research
 

Earnings Performance

MNST’s bottom-line results have left much to be desired as of late, with the company falling short of the Zacks Consensus EPS Estimate in four of its last six quarters. Just in its latest print, MNST penciled in a steep 25% bottom-line miss.
 

Bottom Line

Steep valuation levels paired with overwhelmingly negative estimate revisions from analysts paint a grim picture for the company in the short term.

Monster Beverage is a Zacks Rank #5 (Strong Sell) and a stock that investors will be better off staying away from for now.

Instead, investors should pivot to stocks that either carry a Zacks Rank #1 (Strong Buy) or Zacks Rank #2 (Buy) – the odds of reaping considerable gains are much higher within the companies that carry these ranks.


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