Monster Beverage Corp (MNST), The Coca-Cola Company (KO): Don’t Be Afraid of This Monster

Compounding these hurdles, both the American Medical Association and the American Academy of Pediatrics issued statements declaring that energy drinks should not be marketed to children under 18 years old. In early May, the city of San Francisco filed a lawsuit alleging that the company targets children with marketing for its energy drinks. Monster responded in kind, filing a countersuit against the city in federal court to claim that it is being unfairly targeted by the city attorney. In New York State, proposals have been introduced to limit the marketing of energy drinks to minors and ban their sale in public parks. In Chicago, a local official upped the ante with a proposed ban on the sale and distribution of energy drinks to all consumers.  

To put these claims in perspective, it is estimated that more than 50 billion energy drinks have been sold worldwide over the past 25 years, including more than 9 billion cans of Monster since 2002. Though the threat of government regulation and concerns over product safety should not be taken lightly, the company is quick to point out that Monster has about half as much caffeine per fluid ounce as a Starbucks coffee. I believe that these legal threats are a passing concern and will not have a lasting effect on future demand for Monster’s products. 

Still a buy?
When news of pending litigation surfaced, Monster Beverage Corp (NASDAQ:MNST)’s stock was rocked for a 16% loss. Monster has since bounced back, but with the stock nearly 10% off its 52-week high, investors are taking a wait-and-see approach. Although the company trades at a higher earnings multiple than its peers, its strong free cash flow, impressive operating and net margins, high return on equity, and a history of earnings growth make this one monster not to be scared of.

The article Don’t Be Afraid of This Monster originally appeared on Fool.com and is written by Matt Brandon.

Fool investing intern Matt Brandon has no position in any stocks mentioned. The Motley Fool recommends Coca-Cola, Monster Beverage, and Starbucks. The Motley Fool owns shares of Monster Beverage and Starbucks.

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