Monster Beverage Corporation (MNST) Proves Skeptics Wrong

Short interest is at multi-year highs for energy drink maker Monster Beverage Corporation (NASDAQ:MNST)

Jul 1, 2016 at 2:06 PM
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Earlier today, energy drink maker Monster Beverage Corporation (NASDAQ:MNST) marched to an all-time peak of $161.91, although the shares were last seen 0.4% lower at $160.00. This is just more of the same for MNST stock, which has outpaced the S&P 500 Index (SPX) by 18.5 percentage points over the past three months. Looking back even further, the shares have gapped higher multiple times since 2014, with MNST sporting a 24-month lead of 128%. Yet, despite this long-term outperformance, skeptics both in and out of the options pits continue to target MNST. 

We've been monitoring the elevated short-interest levels on MNST for months -- and it just keeps going higher. Schaeffer's Quantitative Analyst Chris Prybal pointed out that short interest on the stock has now increased by a remarkable 291% in 2016 alone. There are now 9.9 million MNST shares controlled by short sellers, the most since November 2009. At the stock's normal trading pace, it would take these short sellers almost a week to cover -- what we generally consider to be an ample amount of sideline cash to sustain a short-covering rally. 

There's plenty pessimism in the options pits, too, which could also work against the shares. Over the past 10 weeks at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the stock has racked up a put/call volume ratio of 1.37, which tops 72% of all other readings from the past year. This means there's been an unusually strong appetite for MNST's long puts of late.

Meanwhile, premium for near-term MNST options is rather muted, relatively speaking. This is according to the stock's Schaeffer's Volatility Index (SVI) of 21% -- an annual low. Essentially, the options market is pricing in extremely low volatility expectations for MNST options right now. 

Analysts, though, are fully behind Monster Beverage Corporation (NASDAQ:MNST). Of the 12 covering the stock, nine recommend buying it, and zero have issued a "sell" rating. However, MNST's 12-month price target sits right overhead at $163.27. 

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