Given its better prospects, we believe Keurig Dr Pepper stock (NASDAQ: KDP) is a better pick than Monster Beverage stock (NASDAQ: MNST). KDP is trading at a lower valuation of 3.0x revenues compared to 8.2x 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, MNST has had a Sharpe Ratio of 0.6 since early 2017, higher than -0.1 for Keurig Dr Pepper and 0.5 for the S&P 500 Index over the same period. This compares with the Sharpe of 1.2 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.
Looking at stock returns, Monster Beverage, with a stellar 106% return this year, has fared much better than Keurig Dr Pepper, down 11%, and the broader S&P500 index, up 11%. There is more to the comparison, and in the sections below, we discuss why we believe KDP will offer better returns over MNST in the next three years. We compare a slew of factors, such as historical revenue growth, returns, and valuation, in this analysis.
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1. Monster Beverage’s Revenue Growth Is Better
- Monster Beverage’s 15% average annual revenue growth rate in the last three years is much better than 8% for Keurig Dr Pepper.
- Keurig Dr Pepper did not see any significant impact of the pandemic on its sales, as at-home demand for K-Cups increased due to a sudden surge in at-home consumption.
- The company has the edge over other beverage companies as its coffee segment continues to grow, with people moving away from carbonated drinks and replacing them with other beverages.
- 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 slightly better than 10% for Keurig Dr Pepper.
- Our Keurig Dr Pepper Revenue Comparison and Monster Beverage Revenue Comparison dashboards provide more insight into the companies’ sales.
- Looking forward, Monster’s revenue is expected to grow faster than Keurig Dr Pepper’s over the next three years, based on Trefis Machine Learning analysis.
2. Monster Beverage Is More Profitable
- Keurig Dr Pepper’s operating margin has contracted from 21% in 2019 to 17% in 2022, while Monster Beverage’s operating margin fell from 33% to 25% over the same period, partly due to a rise in overall costs.
- Looking at the last twelve-month period, Monster Beverage’s operating margin of 27% fares better than 13% for Keurig Dr Pepper.
- Our Keurig Dr Pepper 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 1% for Keurig Dr Pepper. Also, Keurig Dr Pepper’s debt as a percentage of equity is around 28%, while Monster Beverage is a debt-free company.
3. The Net of It All
- We see that Monster Beverage has seen better revenue growth, is more profitable, and has a better financial position. This also explains its higher P/S multiple of 8x sales compared to 3x for Keurig Dr Pepper.
- Now, looking at prospects, using P/S as a base, due to high fluctuations in P/E and P/EBIT, we believe Keurig Dr Pepper is the better choice of the two.
- If we compare the current valuation multiples to the historical averages, KDP fares better, with its stock currently trading at 3.0x revenues vs. its last five-year average of 4.1x. In contrast, Monster Beverage stock trades at 8.2x 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 8x 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 $52. On the other hand, even with comparatively slower sales growth, Keurig Dr Pepper should see its P/S multiple expand, resulting in better returns over the next three years.
- Our Keurig Dr Pepper Valuation Ratios Comparison and Monster Beverage Valuation Ratios Comparison offers 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 9% for KDP over this period vs. a 4% expected return for MNST, based on Trefis Machine Learning analysis – Keurig Dr Pepper vs. Monster Beverage– which also provides more details on how we arrive at these numbers.
- Although we believe Keurig Dr Pepper is a better pick over Monster Beverage, we acknowledge that 9% returns for KDP isn’t great. There are better opportunities over Keurig Dr Pepper stock. Our Better Bets Than KDP Stock dashboard details S&P500 stocks that can offer better returns in the next three years.
While KDP may outperform MNST in the next three years, it is helpful to see how Keurig Dr Pepper’s Peers fare on metrics that matter. You will find other valuable comparisons for companies across industries at Peer Comparisons.
|S&P 500 Return||-1%||11%||90%|
|Trefis Reinforced Value Portfolio||-3%||20%||514%|
 Month-to-date and year-to-date as of 10/5/2023
 Cumulative total returns since the end of 2016