Why Monster Beverage's Shares Got Stomped
Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.
What: Shares of energy-drink maker Monster Beverage (NAS: MNST) were losing their fizz today, falling as much as 13% in intraday trading on the news that the company is being investigated by a state attorney general.
So what: The disclosure in Monster's 10-Q filed yesterday with the SEC reads:
In July 2012, the Company received a subpoena from a state attorney general in connection with an investigation concerning the Company's advertising, marketing, promotion, ingredients, usage, and sale of its Monster Energy brand of energy drinks. As the investigation is in an early stage, it is unknown what, if any, action the state attorney general may take against the Company, the relief which may be sought in the event of any such proceeding, or whether such proceeding could have a material adverse effect on the Company's business, financial condition, or results of operations.
That's clear enough -- there's an investigation that could have negative implications for the company and its chief product, so we're clearly looking at bad news here.
Now what: But while it's easy enough to conclude that investigation by a state attorney general is bad news, there is a ton that's unanswered here. We don't know which state this comes from -- I figure we can assume it's just one state, since Monster uses "a state attorney general" -- nor do we know what specifically is under investigation. Without knowing any of that, it's hard to conclude what repercussions could result from this.
I can't blame investors for being skittish after this disclosure, but for current Monster shareholders, deciding whether to sell or buy -- to take advantage of today's drop -- is really a crapshoot until there's some more color on what exactly is going on here.
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