Legal troubles a Monster for beverage company’s stock

9th May 2013 No Comments

stocksMonster Beverage is facing a monster of its own as lawsuits have led to a steep drop in stock prices lately.

Shares of Monster (MNST) have dropped 7% since the company shared a drop in first quarter earnings, as well as poor sales growth thus far in 2013.

On Wednesday, Monster said that there were multiple reasons for the earnings problems, including various costs tied with the termination of distribution arrangements, as well as expenses related to lawsuits against the company.

Most recently, Dennis Herrera, city attorney in San Francisco, filed a lawsuit saying that Monster continues to peddle their highly-caffeinated drinks to kids, even though there is medical evidence that energy drinks can be dangerous for them. For their part, Monster has itself filed a complaint against Herrera in federal court.

Your beverage company generally does better if people don’t think your product will kill them, and the FDA was investigating reports that associated five deaths to the popular energy drink line. Of course, Monster Beverages has denied such associations, but the bad publicity still hasn’t helped.

Aside from even that issue, investors are troubled by slowed sales growth for the beverage maker, which had maintained in the double digits the last few years before slipping to 7% in the first quarter of this year.

CEO Rodney Sacks says that Monster Beverages is simply going through the same thing that other energy drink makers are in a “soft” market, but other caffeinated drinks, most notably coffee drinks, are doing just fine.

Now, many investors who had previously championed Monster Beverages have decided that the best times are behind the company and the time is now to get out while the getting is (relatively) good. Can the company rebound, or are the legal troubles a precursor to a continued fall from profitability and growth that should send investors running?

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