5,000% Profits in Hansen Natural

From “Dave Barry’s Money Secrets,” a sure-fire way to beat the market:

Step 1. Gather all available financial data on the top 1,000 stocks for the past 25 years.
Step 2. By conducting a thorough analysis of each stock—select the 10 stocks that have performed best in this time period.
Step 3. Using a time machine, go back 25 years and buy these stocks.

There’s of course one major drawback to this idea. Since we have an efficient market, someone else already invented the time machine and bought those stocks thereby erasing any profit opportunity.
Personally, I’d only go back three years ago to buy shares of Hansen Natural (HANS). Hansen is quickly becoming the stock to own of the decade. If you’re not familiar with Hansen, the company is known for its Monster Energy drink. These drinks are basically massive amounts of sugar and caffeine, with a tiny portion reserved for water so that the drink can in fact be drunked.
How well has Hansen done? You could have picked up some shares in early 2003 for $2 a piece. A little lower if you were lucky. The stock is up another $11 in today’s trading to $103 a share. So we’re looking at a 50-fold increase in three years. That’s better than Google (GOOG) or Apple (AAPL) or Toll Brothers (TOL). Even gold.
The reason for today’s surge is—you guessed it—a price target increase. Gregory Badishkanian of Citigroup raised his price target from $88 (psst) to $130 (kewl!).

Over the next five years, Badishkanian said he expects Hansen to grow 20 percent compared with an 8 percent earnings-per-share growth rate for the mature beverage giants. The analyst added he also sees Hansen’s earnings growth sailing past its peer group of smaller beverage and food companies, which are expected to grow 12 percent in the next five years.

Please. To echo Richard Dreyfus in Jaws, the idea that these analysts can predict Hansen’s earnings growth five years out is a million to one. Put it like this, even if they get the numbers right, the chances that they’d know why are another million to one. Could anyone in January 2001 predict the market environment of today?
The Hansen Natural of today is largely the brainchild of two South African businessmen. They bought a shell company and then went searching for a company to buy. In 1992, they bought Hansen for $14.5 million. After seeing the success of Red Bull, the pair moved Hansen into the energy drink market. Their first drink was a flop so they decided to turbocharge it. Hansen offered its drinks in 16-ounnce cans, plus they doubled the caffeine dosage. The drinks cost about $2 a can. What’s really set Hansen apart is it ability to target younger consumers.
Hansen has about an 18% share of the market, which is growing very quickly. However, the major soda players have moved in with their own offerings. (The cola wars continue, just on another front). According to Rodney Sacks, Hansen’s CEO:

The energy-drink category is growing 50% a year and that there’s room in the market for everybody. “These are the new soft drinks of the world,” he declares. Sacks and Schlosberg are fending off the attack by diversifying. They’ve launched Joker, an energy drink sold exclusively in Circle K convenience stores, and Rumba, a caffeine-laced juice drink designed to be a morning pick-me-up. And they introduced Monster Assault, which comes in a black-and-gray camouflage can that says “Declare war on the ordinary!” It’s a slogan that could describe the juiced-up strategy of this formerly sleepy beverage player.

I just heard Jim Cramer say on CNBC that Hansen is where Google was a year ago.

Posted by Eddy Elfenbein on January 13th, 2006 at 1:58 pm

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