Since making its public market debut, energy drink specialist Monster Beverage (MNST) has delivered blistering returns for its shareholders. However, this beast has been tamed in recent sessions. Since the beginning of January, MNST stock stumbled more than 11%. During the past 52 weeks, it gave up more than 12% of equity value. Should investors start worrying?
On paper, the answer sounds like a “yes” – a resounding yes if we’re being honest. For one thing, the Barchart Technical Opinion indicator identifies MNST stock as an 88% Strong Sell. Key gauges of market dynamics across short, medium and long terms all point to a potential bearish outlook.
Second, the company hasn’t exactly been impressive on the financial front, at least when it comes to analyst expectations. In the most recently disclosed quarter, Monster missed Wall Street’s estimate for earnings per share by 4.6%. And despite revenue rising 11.8% year-over-year, this figure too missed the target, albeit slightly.
Further, the overall performance of MNST stock has conspicuously slowed. From the doldrums of 2020 to the end of 2021, speculators enjoyed a robust return. However, since Dec. 31, 2021 to Monday’s close, MNST gained a little over 8%.
To be fair, analysts are still giving Monster stock a chance. Currently, they rate shares a consensus moderate buy. This assessment breaks down as 12 Strong Buys, one Moderate Buy, seven Holds and one Strong Sell. Plus, the mean price target of $62.95 still implies a decent 21.3% lift from the time of writing.
Even though circumstances don’t look particularly hot for Monster, risk-tolerant contrarians should give it another look.
Bearish Options Activity Opens Contrarian Trade for MNST Stock
Following the close of the June 3 session, MNST stock represented one of the highlights of Barchart’s screener for unusual stock options volume. This data interface helps identify which market ideas that the smart money is interested in, potentially presenting valuable intelligence for retail investors.
For MNST stock, total volume reached 126,559 contracts against an open interest reading of 311,971 contracts. Against the trailing one-month average metric, Friday’s volume was up 466.31%. Drilling into the details, call volume was 64,348 contracts while put volume landed at 62,211 contracts.
With a put/call ratio of only 0.97, it’s not exactly the most ringing endorsement for the bulls. In fact, looking at Barchart’s options flow screener – which focuses exclusively on big block transactions likely placed by institutional investors – net trade sentiment sat at $133,700 in favor of the bears.
Additionally, the highest premium among options with bullish sentiment reached $75,000. On the other end of the sentiment spectrum, the highest premium clocked in at $185,000 for the bears. Judging from the data, it appears that on Monday, the bears have been attempting to drive down MNST stock.
Of course, that doesn’t sound great for the bulls at face value. However, it’s important to keep in mind that the global market for energy drinks is more promising than that of traditional coffee. According to Grand View Research, the global coffee market size reached a valuation of $461.25 billion in 2022. By 2030, the sector could be worth $690.09 billion.
That represents a compound annual growth rate (CAGR) of 5.2%. Now consider the global energy drinks. Per the same research firm, the sector reached a valuation of $86.35 billion in 2021. Analysts project that by 2030, the space could be worth $177.58 billion or a CAGR of 8.3%.
Monster Beverage is Beating Industry Trends
For context, the coffee market is simply larger than the energy drink sector. Therefore, it’s not unusual for coffee to incur the slower growth rate. However, that also means that if you’re looking for a discounted opportunity, MNST stock has greater breadth to expand.
Not only that, analysts project that by 2028, Monster’s revenue could reach $11.47 billion. In 2023, the company posted revenue of $7.14 billion. Therefore, its sales are projected to hit just under 10% (9.94% to be exact).
To summarize, the energy drink market is accelerating at a quicker clip than the coffee sector. And within this promising arena, Monster is one of the entities leading the charge. That’s a good reason to buy MNST stock in this weakness, not to bet against it.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
