Buying Opportunity for Monster Beverage or Toss the Giant Can in the Trash?
The FDA is reviweing reports that Monster energy drinks played a role in the deaths of five people, including a 14-year old girl whose parents are suing the company.
Question for risk takers: How likely is it that there will be either:
- significant damages from the lawsuit, or
- regulatory action that would hurt sales?
The day before the FDA announced the review in interviews with the news media, MNST‘s common stock closed at $53.32. On October 22, the day of the FDA’s interviews, it closed at $45.73. As of this writing, the shares are trading around $40.80.
If investors put little weight on the repurcussions, or if the reported deaths were due to other causes, this could be an overreaction. For example, one story noted that the girl’s lawsuit said she died from “cardiac arrhythmia due to caffeine toxicity” that complicated an existing heart valve condition related to a disorder called Ehlers-Danlos syndrome. Or, regulators may impose labeling requirements that do not change the behavior of the buyers. After all, “Monster is unaware of any fatality anywhere that has been caused by its drinks.”