Even with traffic down at convenience stores, the energy drink segment continues to grow. According to a report using data from Nielsen Co., energy drink sales have improved recently with Hansen's Monster (the # 2 energy drink in the US behind Red Bull) growing faster than the overall energy drink market.
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...growth of the overall energy drink category and Hansen Natural Corp., maker of Monster, both accelerated in the four weeks leading up to March 20. Overall energy drink sales in convenience stores rose 5.1 percent and Hansen's sales rose 8.6 percent. Convenience stores account for about 75 percent of energy drink sales.
Hansen Natural Corp. should earn ~$ 220 million this year on over a $ 1.2 of sales. Its current market value is ~$ 3.7 billion with no debt and over $ 400 million of cash on the balance sheet. They have created a very successful brand but distribution still depends on the likes of Coca-Cola. With a ~15x enterprise value/earnings it is definitely not an inexpensive stock. As of now, the company's economics are excellent with extremely high returns on capital. If those returns on capital are at all durable over time then the current multiple is cheap. The difficult part is: 1) a lack of product breadth (90% of sales comes from energy drinks), 2) dependence on others for distribution, and 3) fierce competition between Hansen and larger (financially stronger) companies. These 3 things will continue to be hard to gauge risks going forward. As a result, estimating intrinsic value is not easy for this one.
On the other hand, if someone wants to make a concentrated investment in one of the two leaders of the energy drink segment Hansen is pretty much it. I've noted what I'd pay for HANS in Stocks to Watch for quite a while (up to $ 30/share). I think a large margin of safety is warranted on HANS to account for the 3 risks noted above (Current market price is ~ $ 41/share).
It is possible that Hansen will be acquired one of these days by Coca-Cola or Pepsi to more firmly tie this strong brand with distribution. That's a reasonable guess but who knows. Coca-Cola seems more likely considering the existing distribution relationship. The CEO of Coca-Cola Enterprises (CCE) has said recently he'd like to have more Monster to distribute.
Hansen has obviously done a lot of things right up to now. They have been going up against some pretty tough competitors for a long time and winning. Building a highly profitable $1 billion brand in a decade or so with competitors like Coca-Cola, Pepsi and Red Bull is no small feat. It will interesting to see if they can continue to execute as they move from being primarily a US brand to a global one.
Adam
This site does not provide investing recommendations as that comes down to individual circumstances. Instead, it is for generalized informational, educational, and entertainment purposes. Visitors should always do their own research and consult, as needed, with a financial adviser that's familiar with the individual circumstances before making any investment decisions. Bottom line: The opinions found here should never be considered specific individualized investment advice and never a recommendation to buy or sell anything.
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"Long ago, Sir Isaac Newton gave us three laws of motion, which were the work of genius. But Sir Isaac's talents didn't extend to investing: He lost a bundle in the South Sea Bubble, explaining later, 'I can calculate the movement of the stars, but not the madness of men.' If he had not been traumatized by this loss, Sir Isaac might well have gone on to discover the Fourth Law of Motion: For investors as a whole, returns decrease as motion increases." - Warren Buffett
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"Warren and I have not made our way in life by making successful macroeconomic predictions and betting on our conclusions.
Our system is to swim as competently as we can and sometimes the tide will be with us and sometimes it will be against us. But by and large we don't much bother with trying to predict the tides because we plan to play the game for a long time.
I recommend to all of you exactly the same attitude.
It's kind of a snare and a delusion to outguess macroeconomic cycles... ...very few people do it successfully and some of them do it by accident. When the game is that tough, why not adopt the other system of swimming as competently as you can and figuring that over a long life you'll have your share of good tides and bad tides?" - Charlie Munger
Our system is to swim as competently as we can and sometimes the tide will be with us and sometimes it will be against us. But by and large we don't much bother with trying to predict the tides because we plan to play the game for a long time.
I recommend to all of you exactly the same attitude.
It's kind of a snare and a delusion to outguess macroeconomic cycles... ...very few people do it successfully and some of them do it by accident. When the game is that tough, why not adopt the other system of swimming as competently as you can and figuring that over a long life you'll have your share of good tides and bad tides?" - Charlie Munger