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Investing.com -- Shares of Monster Beverage (NASDAQ: NASDAQ:MNST) dropped 1% as Spruce Point, a known short seller, expressed skepticism about the company's valuation, suggesting a potential 25%-40% long-term downside risk. The short seller's report questions Monster Beverage's market position, citing intensifying competition and reliance on Coca-Cola (NYSE:KO) for distribution, which could undermine the energy drink maker's premium stock valuation relative to its peers.
Spruce Point's analysis points to a variety of challenges facing Monster Beverage, including increased market pressure from new entrants in the energy drink sector and promotional intensity within convenience stores. The report also highlights concerns over Monster's international growth prospects, particularly in Europe, the Middle East, and Asia (EMEA), noting slower momentum and potential regulatory headwinds.
The short seller's scrutiny extends to Monster's financial practices, including a recent auditor switch and anomalies in financial reporting. The report underscores the company's high stock-based compensation and insider stock sales, suggesting that Monster's stock price may be overly dependent on maintaining its perceived equity value.
Despite Monster Beverage's reported revenues of approximately $7,492 million and EBITDA of $2,188 million for the last 12 months ended December 31, 2024, Spruce Point believes that the company's share price trades at an irrational premium to Coca-Cola and is already fully valued relative to the consensus price target. The report also casts doubt on the health of Monster's relationship with Coca-Cola, noting declining commissions and spiking receivables.
Spruce Point's valuation of Monster, based on industry multiples, implies a significant downside risk compared to the current market price. The report concludes that Monster's share price is likely to underperform both the food and beverage industry and the broader equity market.
Monster Beverage has not yet responded to the claims made by Spruce Point.
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