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The Monster Problem with Monster Energy

Taking a quick look at the chart of $MNST (formerly $HANS) will make all the momentum players salivate.

mnst stock chart

And don't get me wrong-- I'm on board too. I've been a fan of the company and the product line for well over 6 years.

My Energy Drink Resume

Back when I was president of my fraternity, one of the members was a marketing manager for Monster Energy.

We had the stuff brought to us by the pallet.

And I drank them. A lot of them.

So I know the energy drink space backwards and forwards.

And there is a risk to $MNST profit margins.

Product Background

Here is what I know:

  • Redbull will always be king. They were the first to come to the forefront, although there were failed brands that came before them.
  • The battle for second place is between Monster Energy and Rockstar. The big 3 are the main sponsors at extreme sporting events (think X-Games).
  • The average retail for a can is $2.50, which is much higher than other soft drinks

The Pricing Issue

But upon doing "channel checks" at the local $TGT, here's what I've found:

I've seen this sale come up every few weeks but the frequency and duration are both increasing.

So what's going on?

The risk that $MNST faces right now is that their product line is being commoditized and that competitive pricing may squeeze margins.

Keep an eye on this as we head into earnings as this may affect investor outlook on the stock.

Will I trade off this? No-- I like it long here still, but if price starts to significantly weaken then any trend change may come quickly.

As a footnote: the last time I noted something like this it's when I saw a $GMCR Keurig machine at a retail salvage store. They have done pretty well since then...

 

by Steven Place

Steven Place is the founder and head trader at investingwithoptions.com/