Monster Beverage Is Splitting Its Stock 2-for-1 on Aug. 11. Here's What a $1,000 Investment Could Be Worth in 5 Years.

Who doesn't love a stock split? Energy drink powerhouse Monster Beverage (NASDAQ: MNST) recently announced a 2-for-1 stock split, the company's sixth since 2005. Shareholders as of July 24 after the market's close will receive a 100% stock dividend after the market closes on Aug. 10. The stock will begin trading at its split-adjusted price on Aug. 11.

Although stock splits don't affect a company's financials, investors love them because they typically occur when things have gone well. Indeed, Monster Beverage has been, well, a monster. The stock is up over 24,000% since 2005.

The real question, though, is what will the stock do in the future? Here's what a $1,000 investment might look like in five years.

Image source: Getty Images.

The math behind stock splits

Suppose you invested $1,000 in Monster Beverage at $100 per share before the market closed on July 24, and shares still traded at that same price when the stock split took place. Your investment would still be worth $1,000. However, instead of 10 shares at $100, you'd now have 20 shares worth $50 each.

Remember that stock splits proportionately affect a company's per-share metrics based on the change in share count. So, a stock earning $10 per share would earn $5 per share after a 2-for-1 split, but there would be twice as many shares. Stock splits are simply about how a company divides the pie among investors. The actual size of the pie doesn't change.

Where could Monster stock be in 5 years?

Monster Beverage's earnings growth and valuation will directly impact the stock's returns. Shares are currently trading at 45 times the company's trailing-12-month earnings, well above its 10-year average P/E ratio of 37. Additionally, analysts expect earnings to grow by an average of 13% annually over the next three to five years. That's solid growth, but it's probably fair to call the stock overvalued.

I'll assume that Monster grows in line with analyst estimates, so 13% for the next five years. I'll also use split-adjusted numbers. As a result, Monster's earnings would look something like this:

Data source: Ycharts. Calculations by author.

Adjusting the stock's current share price of $93.50 for the upcoming 2-for-1 split would result in shares trading at $46.75. Now, I'll assume that Monster Beverage is trading at its long-term average P/E ratio of 37 by year five. That puts the stock at $70.30 per share in year five, roughly 50% higher than where it is now -- again, on a split-adjusted basis.

That's not remarkable, but Monster does look expensive here. As fun as stock splits can be, valuation matters more for stock returns.

Justin Pope has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Monster Beverage. The Motley Fool has a disclosure policy.