Which Is A Better Beverage Pick – Coca-Cola Stock Or Monster Beverage

We believe Coca-Cola stock  (NYSE: KO) is a better beverage pick than its peer, Monster Beverage stock (NYSE: MNST). Coca-Cola has a 19% stake in Monster Beverage. KO is trading at a lower valuation of  5.7x revenues compared to 8.7x for MNST. Investors have assigned a higher multiple to Monster Beverage stock due to its superior revenue growth and financial position, as discussed below.

Interestingly, KO has had a Sharpe Ratio of 0.3 since early 2017, while the figure stood at 0.6 for MNST and 0.6 for the S&P 500 Index over the same period. This compares with the Sharpe of 1.3 for the Trefis Reinforced Value portfolio. Sharpe is a measure of return per unit of risk, and high-performance portfolios can provide the best of both worlds.

If we look at stock returns, Monster Beverage, with a stellar 120% return this year, has fared far better than Coca-Cola stock, down 8%, and the broader S&P 500 index, up 15%. There is more to the comparison, and in the sections below, we discuss why we believe KO will offer higher returns over MNST in the next three years. We compare a slew of factors, such as historical revenue growth, returns, and valuation, in an interactive dashboard analysis of Coca-Cola vs. Monster Beverage: Which Stock Is A Better Bet? Parts of the analysis are summarized below.

1. Monster Beverage’s Revenue Growth Is Better

• Monster Beverage’s revenue growth has been better, with a 14.6% average annual growth rate in the last three years, compared to 5.6% for Coca-Cola.
• For Coca-Cola, both at-home and away-from-home channels have grown, primarily driven by solid pricing trends.
• North America and Latin America segments saw strong 19% y-o-y sales growth in 2022, led by both volume growth and better price realization.
• Monster Beverage has benefited from a solid demand for its energy drinks. The company is also focused on new product launches and expansion in international markets. The pricing growth has also bolstered its overall top-line expansion.
• Looking at the last twelve months, Monster Beverage’s 11% top-line growth fares better than 7% for Coca-Cola.
• Our Coca-Cola Revenue Comparison and Monster Beverage Revenue Comparison dashboards provide more insight into the companies’ sales.
• Looking forward, Monster is expected to continue seeing its sales rise at a higher pace than Coca-Cola. The table below summarizes our revenue expectations for the two companies over the next three years. It points to a CAGR of about 2% for Coca-Cola and 9% for Monster Beverage,  based on Trefis Machine Learning analysis.
• Note that we have different methodologies for companies that are negatively impacted by Covid and those that are not impacted or positively impacted by Covid while forecasting future revenues. For companies negatively affected by Covid, we consider the quarterly revenue recovery trajectory to forecast recovery to the pre-Covid revenue run rate. Beyond the recovery point, we apply the average annual growth observed three years before Covid to simulate a return to normal conditions. For companies registering positive revenue growth during Covid, we consider yearly average growth before Covid with a certain weight to growth during Covid and the last twelve months.

2. Coca-Cola Is More Profitable

• Coca-Cola’s reported operating margin slid from 29.9% in 2019 to 28.8% in 2022, while Monster Beverage’s operating margin fell from 33.4% to 25.1% over the same period, partly due to a rise in overall costs.
• Looking at the last twelve-month period, Coca-Cola’s operating margin of 28.9% fares better than 27.2% for Monster Beverage.
• Our Coca-Cola Operating Income Comparison and Monster Beverage Operating Income Comparison dashboards have more details.
• Looking at financial risk, Monster Beverage fares better with its 35% cash as a percentage of assets, much higher than 14% for Coca-Cola. Also, Coca-Cola’s debt as a percentage of equity is around 16%, while Monster Beverage is a debt-free company.

3. The Net of It All

• We see that Monster Beverage has better revenue growth and financial position. On the other hand, Coca-Cola is more profitable and is available at a comparatively lower valuation multiple.
• Now, looking at prospects, using P/S as a base, due to high fluctuations in P/E and P/EBIT, we believe Coca-Cola will offer better returns in the next three years over Monster Beverage.
• If we compare the current valuation multiples to the historical averages, KO fares slightly better. Coca-Cola’s stock trades at 5.7x sales compared to its last five-year average of 6.8x, and Monster Beverage stock trades at 8.7x revenues vs. the last five-year average of 4.9x.
• To some extent, a rise in P/S multiple for MNST is justified, given its robust revenue growth. That said, the 9x sales figure looks like a stretch, especially with its operating margins lower than the 33% level seen in 2019, before the pandemic.
• We think the positives are already priced in for Monster Beverage at its current market price of around $56. On the other hand, even with comparatively slower sales growth, Coca-Cola should see its P/S multiple expand, resulting in better returns over the next three years.
• Our Coca-Cola (KO) Valuation Ratios Comparison and Monster Beverage (MNST) Valuation Ratios Comparison have more details.
• The table below summarizes our revenue and return expectations for both companies over the next three years and points to an expected return of 8% for Coca-Cola and -1% return for Monster Beverage over this period, based on Trefis Machine Learning analysis – Coca-Cola vs. Monster Beverage– which also provides more details on how we arrive at these numbers.

Furthermore, the Covid-19 crisis has created many pricing discontinuities which can offer attractive trading opportunities. For example, you’ll be surprised at how counter-intuitive the stock valuation is for Coca-Cola vs. Footlocker.

[1] Month-to-date and year-to-date as of 9/21/2023
[2] Cumulative total returns since the end of 2016

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