Monster Beverage VS Coca-Cola

An analysis comparing the business and financials of Monster Beverage and Coca-Cola with their current market valuation.

Monster Beverage logo
Monster Beverage logo

Monster Beverage VS Coca-Cola emoji 💎emoji 🙌

I wanted to add a boring beverage stock to my portfolio, and I was by default opting for the standard and well-known Coca-Cola. It is Buffett approved, which holds an astonishing 400M shares, for a total worth at the time of writing of ~21B$, and that consists of a ~9% stake in the company.

But then, I got to know and look into the numbers of Monster Beverage, and I fell in love with what I saw.

Coca-Cola (KO)

Let's start with the strong points of Coca-Cola: it is indeed one of bluest among the blue chips (cap. of ~230B$), diversified across a broad portfolio of loved brands (Coca-Cola, Fanta, Sprite, Dasani, Innocent, Powerade, Schweppes, and many more), and has delivered incredible returns over the years, making the fortune of a lot of people.

It is keeping a strong and highly profitable core business, selling basically flavored water at a huge premium, and that's why in spite of the high competition it is still able to hold a ~21% net profit margin. And that's something that doesn't even require big investments in R&D or CapEx.

It is a well-known brand. Everybody knows it and has at least one time tried the nice and addictive flavour of a fresh Coca-Cola during some hot summer day. And here another good point: its sugar based composition is quite addictive. Being liquid makes people not paying too much attention at the calories and nutritional values, hence drinking a lot of it. And that's awesome for the business (a bit less for people's health).

So, Francesco, what's the point, do you like Coca-Cola (KO) or not?

Monster Beverage (MNST)

Coca-Cola is a great business, but Monster Beverage is even better, at today's valuation.

Monster is superior to Coca-Cola by almost every metric: growth, profit margin, debt levels, future prospects. I have to recognise the maybe Coca-Cola is not the real opponent of Monster, that would be RedBull. If we reduce the set of beverages companies to the subset of "energy drinks" companies, then we have a duopoly between Monster and RedBull, where each has around 40% of the global market share ([1]). The fact is that RedBull is not a public company, so let's bear with it.

If we look inside the financials of Coca-Cola, then the situation is not so great as it seemed from the outside. The numbers tell us a different story. The business still has those great characteristics, but: the top-line is constantly shrinking (~48B$ FY2012 vs ~33B$ FY2020), EPS are basically flat (2.00$ FY2012 vs 1.80$ FY2020) and the total debt has kept rising (~32B$ FY2012 vs ~44B$ FY2020).

So we have a company that is struggling to keep its size and moat, and has no growth. How much would you value it? Well, at today's price (~53$), the market is paying a P/E of 30. For that kind of valuation, I expect better numbers.

So, how does Monster compare?

Monster has been increasing at a very constant rate the top-line by about 10% every year since the last 10 years (~2B$ FY2012 vs ~4.6B$ FY2020), EPS have grown four-fold (0.65$ FY2012 vs 2.66$ FY2020) and debt is non-existent. Moreover: it has a higher net profit margin (~33% - even more than some Tech companies!), CapEx is negligible (~4% of net income), its products are as addictive (or even more) as Coca-Cola's and it's operating in an expanding market (Energy Drink TAM expected to rise by an average of 7% per year at least till 2025 [1]).

Even covid has not been able to dent his hungry profit engine, reporting a top-line growth of 9.5% also in FY2020.

So here we have a completely different story. We have a company that is steadily growing and able to extract a huge profit margin. How much would you value that? At today's price of ~90$, the market is paying a P/E of 34. Yes, that's more than Coca-Cola, but I truly believe that its strengths and better financials more than offset the slightly higher valuation, making it a more compelling investment than Coca-Cola.

emoji 📚 Footnotes

[1] Source.


All the information and data expressed in this essay are for informational purposes only and are not to be intended as a financial advice. They may be or prove wrong, with the real possibility of capital and money loss, use them at your own risk.


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