Short Seller Sees 25% To 40% Downside In Monster Beverage Shares: 'Vulnerable To Escalating Threats'

Spruce Point Capital Management has announced a short position against Monster Beverage Corp (NASDAQ:MNST) as the short seller sees 25% to 40% downside risk.

What To Know: After conducting a forensic financial and accounting review, short seller Spruce Point raised concerns about the sustainability of Monster’s recent financial performance and the accuracy of its accounting and financial reporting in a new short report released Tuesday.

“Changing consumer preferences, an evolving regulatory landscape, and pressures to reduce government supported programs for unhealthy foods leaves Monster vulnerable to escalating threats,” the short seller said.

“We believe Monster is likely aware of these challenges and is acting in a manner to combat these issues. However, we also believe that Monster may be taking aggressive and/or non-transparent actions that are not in the best interests of investors.”

Benzinga has reached out to Monster Beverage for comment on the report.

Spruce Point believes Monster Beverage shares are fully valued and offer poor risk/reward from current levels. The short seller noted that insiders have been accelerating their pace of stock sales and more than 50% of analysts don’t have a “Buy” rating on the stock.

Monster also trades with an “irrational” premium compared to Coca-Cola Co (NYSE:KO) despite being highly dependent on the company for distribution, the short seller said. Monster has a price-to-earnings ratio of approximately 30.8, according to Benzinga Pro. Meanwhile, Coca-Cola trades with a price-to-earnings ratio of approximately 20.

Furthermore, Spruce Point alleged that Monster’s relationship with Coke is “not healthy” and a potential takeover deal is not in the cards. The short seller said it uncovered evidence of a financial strain between the two companies starting in 2022.

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Spruce Point also said it takes issue with how Monster is reporting sales for its Tour Water brand. Although it’s not an energy drink product, the company reported its revenue in the Monster Energy Drinks segment, which could “potentially be a lever to inflate energy drink organic sales.”

“Moreover, Monster says it is distributed through the Alcohol Brands segment, which casts further doubt on the soundness of its revenue recognition choice,” the short seller said.

Spruce Point went on to raise concerns around margins on sales through Amazon.com Inc (NASDAQ:AMZN), production inefficiencies, increasing competition and social media brand stagnation.

Spruce Point issued a “Strong Sell” opinion on Monster shares as the short seller expects Monster to underperform the food and beverage industry along with the broader equity market moving forward.

MNST Price Action: Monster Beverage shares were down 2.6% at $55.60 at the time of publication Tuesday, according to Benzinga Pro.

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