Take a Pass! The Monster Rally in Monster Stock Will End Soon.

Stocks to sell

If you think the Magnificent Seven stocks are the biggest winners of the past 20 years, check out Monster Beverage (NASDAQ:MNST) stock. The stock’s growth will amaze you, assuming Monster Beverage exceeded financial expectations. That’s actually not the case, though, so it’s a mistake to load up on Monster stock.

Just to recap, Monster Beverage is famous for its non-alcoholic energy drinks but also offers alcoholic beverages. Soon, we’ll take a look at Monster Beverage’s valuation and fiscal figures. In the end, prudent investors will surely want to seek wealth-building opportunities elsewhere.

The Jaw-Dropping Ascent of Monster Stock

In April of 2004, Monster stock traded at 15 cents per share. Recently, the stock reached the $55 level. That’s a 36,567% gain, believe it or not.

If you’re brilliant or lucky enough to have held Monster Beverage shares for that long, don’t be greedy. Cash out your winnings and celebrate with a nice bold beverage. There’s absolutely no guarantee that the share-price rally will continue.

It’s foolhardy to seek growth while ignoring a company’s valuation. Monster Beverage’s trailing 12-month price-to-sales ratio is 8.05x, while the sector median P/S ratio is just 1.19x.

Remember, Monster Beverage drinks are a luxury. We’re not talking about items that will be needed for the foreseeable future, like microchips or automotive parts.

If inflation continues to tick up and/or the economy slows down because of higher-for-longer interest-rate policy, Monster Beverage could be in real trouble.

Monster Beverage’s Valuation Isn’t Justified

I specifically cited Monster Beverage’s P/S ratio because the company’s sales over the past year weren’t as spectacular as the P/S multiple might suggest. As it turns out, Monster Beverage’s 2023 net sales increased 13.1% to $7.14 billion; not bad, but not amazing, either.

Focusing on the fourth quarter of 2023, Monster Beverage’s net revenue grew 14.4% to $1.73 billion. However, this result missed Wall Street’s call for $1.75 billion in quarterly revenue.

Turning to the bottom-line results, Monster Beverage reported adjusted earnings of 35 cents per share in 2023’s fourth quarter. However, this result fell short of the analysts’ consensus estimate of 38 cents per share.

Monster Beverage’s track record of quarterly earnings results versus Wall Street’s estimates is hit-or-miss. It’s concerning that Monster Beverage’s operating expenses jumped from $390 million in 2022’s fourth quarter to $504.4 million in Q4 of 2023.

All in all, the more we learn about Monster Beverage’s financials, the harder it is to justify the company’s valuation.

Monster Stock: Don’t Anticipate Monster Gains

Growth matters, but so does valuation. Sure, Monster Beverage’s investors rode an epic rally during the past 20 years. However, this doesn’t mean Monster Beverage’s market capitalization will continue to expand at that rate.

I encourage eager investors to take a close look at Monster Beverage’s financials from the past year and from 2023’s fourth quarter. Then, take note of Monster Beverage’s P/S multiple.

This is a textbook example of the market getting ahead of itself. Consequently, it’s wise to sell Monster stock if you own it, or to simply avoid it if you don’t own it.

On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

David Moadel has provided compelling content – and crossed the occasional line – on behalf of Motley Fool, Crush the Street, Market Realist, TalkMarkets, TipRanks, Benzinga, and (of course) InvestorPlace.com. He also serves as the chief analyst and market researcher for Portfolio Wealth Global and hosts the popular financial YouTube channel Looking at the Markets.

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