Monster Problems In The Energy Drink Sector
Just in time for Halloween, shareholders of Monster Beverage got the scare of their lives, as shares of the energy drink giant were slammed down 14% in Monday's trading, after the FDA confirmed reports that its investigating five deaths that may be related to the company's energy-boosting products. Shares received another haircut today, down an additional 9%, taking them to just $41 a share, or a 50% decline from their June highs near $80 a share. While the FDA made clear that it is only beginning an investigation into these allegations, the news certainly raises questions, again, for a segment of beverage market that has come under fire in the past.
Monster, of course, has sold billions and billions of cans of its energy drinks over the years, making these new allegations, if the FDA finds them credible, an extremely rare occurrence. A lawsuit that was filed against the company muddies the waters even more, as the 14-year old victim in that case had a pre-existing heart condition and was more susceptible to the effects of caffeine than typical consumers.
Investors need to always remember that the stock markets loves growth. If your company has growth, it's rewarded, if not, it's languishes. If it has accelerating growth, even better, but if it has growth and then slows, or worse, stops growing, then it's game over. There had already been rumblings in the markets that Monster's growth may have already peaked, which is what started sending shares lower beginning in July. Those fears will only be made worse now as consumers once again ponder whether a high-caffeine diet is in their best interests.
Interestingly, there are already quite a few pundits in the media touting that Monster's huge slide is a buying opportunity. I, for one, am not buying into that logic. Not only has the company clearly lost its momentum, but right on cue, the professional analysts, the ones we're supposed to rely on to protect our investments, are now also weighing in.Continued on the next page