We all want to find the next 100-bagger. But it isn’t easy. For me, I think it would be a good exercise to find out about the most well-known one and do an overview of the company when it started out AND where it is now.Plan:1. Business at the start of public filings2. Business now3. Largest drawdowns4. A pattern for future 100-baggersMNST stock on NabzdykRatings - Valuation & ScoresSources: https://www.sec.gov/Archives/edgar/data/865752/000086575202000006/fs123101a.txthttps://www.sec.gov/edgar/search/#/q=10-K&dateRange=custom&ciks=0000865752&entityName=Monster%2520Beverage%2520Corp%2520(MNST)%2520(CIK%25200000865752)&startdt=2001-01-01&enddt=2002-05-01stockanalysis.comThe company had already outsourced all of the capital-heavy operations to outside producers instead of focusing on creating the actual recipes themselves and the brand, but they did sell a lot of products at the time. The Turnaround: In 2000, FCF was -2.3M, by 2001, it swung to +4.4M. This “inflection point” is what a systematic investor looks for.This approach resulted in a large amount of FCF left over, which could then be reinvested to further expand their business – their only real risk was investors – but because of its long shelf life, it wasn’t a huge problem.Pricing power early on: Even before the 16oz can launch, gross margins were steady at 44-46%, proving a stable core brand.Gross margin started out at around 46% (we will come back to this soon – accounting changes);Wtorek that is a starting point. Companies which do that have pricing power and more cash to reinvest.In April 2002, they took a gamble – seeing Red Bull’s success with 8.4 oz cans, they launched bigger cans of 16 oz cans for the same price, called Monster Energy.You can see the impact here:The Financial Accounting Standards Board (FASB) released a new rule called EITF 01-9 in 2001, which said that the producers of goods couldn’t bury the cost of “slotting” fees – or payments that enabled them to actually be sold in grocery stores – in operating costs. So Monster Energy had to restate its numbers, and here you can see the correction:The GAAP Illusion: Accounting changes (EITF 01-9) initially dropped margins, but the underlying business accelerated them to 52% in just 5 years.2002 is the launch year of the energy drink – and you can see that that just accelerated their gross margin – this is another sign – and even though it started low, it grew from 34% to 52% in just 5 years!(Note: During the years 2002–2005, Hansen Natural did not explicitly list a separate line item for stock-based compensation expense on their cash flow statements, which was common prior to the 2006 FASB mandate requiring companies to expense stock options – the true economic cost was hidden in the footnotes):Operating Leverage: As sales grew, FCF margins exploded from 1.5% to over 15%. This is the "flywheel" effect in action.See the rise in FCF generation?share price:The vertical move: While the market focused on accounting restatements, the stock price began its legendary climb based on real FCF growth.But we see the gross margin trend catch this faster – so this is the ultimate sign of a potential compounder – but don’t look at it in isolation.Their largest drawdowns:2008 financial crisis – based on the premise that it isn’t a necessity (like staples) – so people sold off the stock. This is what happens when fear sets in. - This is also a period where investors needed to stay focused:Anti-Fragile: Despite the 2008 crash, Monster’s FCF margins actually increased to 17.3%. Consumers didn’t stop buying their “affordable luxury.”2013 - the health scareIn late 2012, a tragedy happened: Anais Fournier, a 14-year-old girl from Maryland, died after suffering a cardiac arrhythmia after her death had been linked to caffeine intoxication.Directly after that, in October, the FDA issued reports of five deaths and one non-lethal heart attack that could have been tied to Monster Energy from way back in 2004.The drink was marketed as a diet supplement and thus didn’t need to disclose the exact amount of caffeine in it. In early 2013, they switched to the "Beverage" (Nutrition Facts) ingredient list.EVEN before those deaths happened, New York Attorney General Eric Schneiderman issued subpoenas to Monster, claiming they falsely claimed health benefits and targeted children for consumption.In 2013, the company’s executives had to testify under oath and were pressured to lower the caffeine content.Even as this madness occurred, the core business didn’t slow down – the people who bought their drinks continued to do so.The FDA eventually concluded that for a healthy adult, a can of an energy drink was no more dangerous than a cup of strong coffee from Starbucks.But it was a test for any long-term holders.In 2012, the FCF margin declined, but in 2013, it started to recover again.A pattern for future compounders:A company with high gross margins (40%+), which are expandingSales growth – at least 10% over the 5 yearsHigh insider ownership – at least 10% – in 2001, the CEO owned around 39%.In 2012, they owned around ~25% - 30%. In 2015, the Coke deal was ~18% - 22%.Currently it’s at around ~14% - 15%