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The main point of investing for the long term is to make money. But more than that, you probably want to see it rise more than the market average. But Monster Beverage Corporation (NASDAQ:MNST) has fallen short of that second goal, with a share price rise of 83% over five years, which is below the market return. Looking at the last year alone, the stock is up 9.2%.
So let's investigate and see if the longer term performance of the company has been in line with the underlying business' progress.
In his essay The Superinvestors of Graham-and-Doddsville Warren Buffett described how share prices do not always rationally reflect the value of a business. One flawed but reasonable way to assess how sentiment around a company has changed is to compare the earnings per share (EPS) with the share price.
During five years of share price growth, Monster Beverage achieved compound earnings per share (EPS) growth of 8.7% per year. This EPS growth is lower than the 13% average annual increase in the share price. So it's fair to assume the market has a higher opinion of the business than it did five years ago. That's not necessarily surprising considering the five-year track record of earnings growth.
You can see below how EPS has changed over time (discover the exact values by clicking on the image).
We consider it positive that insiders have made significant purchases in the last year. Having said that, most people consider earnings and revenue growth trends to be a more meaningful guide to the business. This free interactive report on Monster Beverage's earnings, revenue and cash flow is a great place to start, if you want to investigate the stock further.
A Different Perspective
Monster Beverage provided a TSR of 9.2% over the last twelve months. But that was short of the market average. It's probably a good sign that the company has an even better long term track record, having provided shareholders with an annual TSR of 13% over five years. It may well be that this is a business worth popping on the watching, given the continuing positive reception, over time, from the market. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. For example, we've discovered 1 warning sign for Monster Beverage that you should be aware of before investing here.
If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: most of them are flying under the radar).