The demand for beverages, including soft drinks and alcoholic beverages, tends to be less affected by economic downturns due to their perceived necessity and consumer loyalty, making the industry a safe haven for investors seeking stability in uncertain times.
In this article, we will delve into a detailed comparison of quality beverage stocks Monster Beverage Corporation (MNST) and Celsius Holdings, Inc. (CELH) and discuss why I think MNST is a better buy than CELH.
But first, let's look at the beverage industry's outlook.
The beverage industry is poised for substantial growth, with revenue projected to reach an impressive $89.53 billion in the US this year. This upward trajectory is expected to continue at a CAGR of 16%, resulting in a US market volume of $162.10 billion by 2027.
Moreover, the industry also witnesses a notable user base, which is expected to grow to 83.07 million users by 2027. User penetration is predicted to rise from 19.8% in 2023 to 23.9% by 2027, showcasing the increasing popularity and consumption of beverages.
Additionally, the average revenue per user (ARPU) is anticipated to amount to $1.35 thousand, reflecting the value and potential profitability within the industry. These statistics highlight the immense market potential and consumer demand within the beverage industry, which should help both MNST and CELH thrive.
CELH has gained 97.3% over the past year, while MNST returned 25.3%. Also, CELH’s 39.5% gains over the past nine months is higher than MNST’s 25.8% returns.
Let's delve into the comparison:
Latest Developments
In the first quarter, MNST introduced a flavored malt beverage alcohol product, The Beast Unleashed, in six select states. This innovative creation boasts a delightful blend of flavors and a six percent alcohol content. The initial response to the launch has been exceedingly positive, prompting MNST to forge ahead and expand its distribution into new territories.
Moreover, in March, MNST introduced Reign Storm, a unique and refreshing energy drink to promote holistic well-being. Available in sleek 12 oz cans, this innovative product caters to the growing demand for wellness-focused beverages.
Furthermore, in the recent quarter results, the company announced that it had set its sights on transitioning the Monster brand to the distribution system of Coca-Cola in the Philippines. This decision reflects their dedication to further strengthening the brand's presence and expanding its reach in this key market.
Recent Financial Results
MNST’s net sales increased 11.9% year-over-year to $1.70 billion in the fiscal first quarter that ended March 31, 2023. Its gross profit rose 15.6% year-over-year to $897.85 million and operating income came in at $485.06 million, up 21.4% from the same quarter last year.
Moreover, its net income amounted to $397.44 million and $0.38 per share, up 35.1% and 40.7% year-over-year.
Conversely, CELH’s revenues rose 94.9% year-over-year to $259.94 million in the first quarter ended March 31, 2023. Gross profit increased 101.2% from the same quarter last year to $113.82 million, while income from operations improved 344% from the year-ago quarter to $44.91 million. In addition, its net income grew 517.3% from the prior-year quarter to $41.23 million.
MNST's higher revenue suggests a larger customer base and a wider distribution reach, underscoring its established position as a leading player in the beverage industry.
Past and Expected Financial Performance
MNST’s revenue and EPS grew at a CAGR of 14.6% and 5.8%, respectively, over the past three years. Analysts expect MNST’s revenue to increase 12.7% in the current quarter, 14% in the next quarter, and 13.1% in the current year. The company’s EPS is expected to grow 53.9% in the current quarter, 33% in the next quarter, and 38% in the current year.
On the other hand, CELH’s revenue grew at a CAGR of 106.3% over the past three years. Analysts expect the company’s revenue to increase 74.5% in the current quarter, 59.9% in the next quarter current year, and 69.5% next year. The company’s EPS is expected to grow 132.1% in the current quarter.
Profitability
MNST’s trailing-12-month EBIT and EBITDA margins of 25.73% and 26.71% are higher than CELH’s negative 15.45% and 15.18%, respectively.
Furthermore, MNST’s trailing-12-month ROCE, ROTA, and ROTC of 18.16%, 14.57%, and 14.64% compare with CELH’s negative 112.46%, 13.25%, and 11.82%, respectively.
Therefore, MNST is more profitable.
Valuation
In terms of forward EV/Sales, MNST is currently trading at 8.14x, which is lower than CELH, which is currently trading at 10.09x. Moreover, MNST’s forward P/B multiple of 7.60 is significantly lower than CELH’s 79.05.
Thus, MNST is the affordable stock here.
POWR Ratings
MNST has an overall rating of B, which equates to a Buy in our proprietary POWR Ratings system. CELH, on the other hand, has an overall rating of C, which translates to Neutral. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight different categories. MNST has a grade of B for Stability, in sync with its 24-month beta of 0.59. CELH’s 24-month beta of 2.08 justifies its grade of F for Stability.
Moreover, MNST has a grade of B for Quality. Its trailing-12-month gross profit margin of 50.77% is 61.9% higher than the industry average of 31.36%. Its trailing-12-month net income margin of 19.95% is 554.9% higher than the 3.05% industry average.
However, CELH has a C grade for Quality. While its trailing-12-month gross profit margin of 42.40% is 35.2% higher than the industry average of 31.36%, its trailing-12-month negative net income margin of 19.58% is significantly lower than the 3.05% industry average.
Among the 37 stocks in the A-rated Beverages industry, MNST is ranked #18, while CELH is ranked #33.
Beyond what we’ve stated above, we have also rated both the stocks for Growth, Momentum, Value, and Sentiment. Click here to view additional POWR Ratings for MNST. Access additional CELH ratings here.
The Winner
In response to the ever-evolving consumer preferences, beverage companies are proactively incorporating sustainable and healthy solutions into their product portfolios. This strategic adaptation aligns with the rapid pace of consumer transformation.
Moreover, amid the current uncertain economic scenario, beverage companies stand out as relatively resilient due to the inelastic demand for their products. Consumers are less likely to forgo their beverages, making the industry somewhat recession-proof.
This should aid CELH and MNST to surf swiftly through the rough waters of the current economy. However, MNST appears to have a stronger market position, wider distribution reach, and a track record of consistent growth compared to CELH.
Furthermore, CELH’s relatively weak profit margins and valuation multiples push MNST far ahead in the rank. Hence, I think MNST is a superior pick than CELH in the beverage industry.
Our research shows that the odds of success increase when one invests in stocks with an Overall Rating of Strong Buy or Buy. View all the top-rated stocks in the Beverages industry here.
What To Do Next?
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MNST shares were trading at $57.45 per share on Friday morning, down $0.08 (-0.14%). Year-to-date, MNST has gained 13.17%, versus a 13.29% rise in the benchmark S&P 500 index during the same period.
About the Author: Kritika Sarmah
Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor's degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities.
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