3 Things to Watch With Monster Beverage

Monster Beverage (Nasdaq: MNST) hasn't had a great summer, but the energy-drink purveyor's shareholders have to be happy with its long-term gains. After the stock's recent pullback, it's worth taking a closer look at the biggest challenges the company now faces. Will we find answers that encourage long-term holding, or is it time to cut and run? Let's find out.

1. How much more energy-drink growth is left?
Monster's most recent quarterly report disappointed investors with a mere 28% gain on the top line and 30% profit growth. Yes, the word "mere" is used here to describe growth most CEOs would sell their firstborns for. The company's five-year stock price growth has averaged 23% annually:

MNST Revenue TTM data by YCharts.

Monster's grown faster than the broader energy-drink market for years, but there are some concerns that the market may be nearing saturation. If that's not the case, there are external threats to consider. My fellow Fool Sean Williams thinks that energy drinks' uncertain effects on Americans' health might lead to tighter regulation, or even an outright disappearance from stores nationwide. Energy drinks make up a tiny sliver of the nonalcoholic beverage market -- just 1%, by one estimate. Getting to 5% would be a huge boon for Monster (and other energy-drink leaders), but is that possible?

2. Is a growth stock pullback inevitable?
Monster's admirably resisted the tug of gravity that's dropped many growth stocks this year. Its trajectory isn't as strongly positive as it was at 2012's halfway point, but it's done better than a few other Foolish growth-stock favorites:

MNST Total Return Price data by YCharts.

SodaStream (Nasdaq: SODA), which is barely positive, has nearly tripled its top-line results since 2008, while Monster's barely doubled its sales. The nature of its business relative to the device-focused SodaStream could account for the discrepancy. See if you can spot the similarities:

Source: Yahoo! Finance.

Monster and Chipotle are quite similar, though Chipotle's pulled ahead on bottom-line growth coming out of the recession:

MNST Revenue TTM data by YCharts.

Owning a high-growth stock can be a wild ride. The last thing you want is for the market to bail out when you're coasting higher, but the past year's results for many former highfliers show that strong results alone can't guarantee further gains. Remember, the latest quarter shouldn't have disappointed serious investors, but it still sparked a pullback. Another weak report could be very damaging.

3. Will competition finally crack Monster's death grip?
It's not for lack of trying that Monster's competitors haven't gotten ahead. Coca-Cola (NYSE: KO) found energy-drink dominance so difficult that it decided to distribute Monster's products instead. SodaStream has its own energy-drink concoction, which probably won't be much of a threat to Monster's convenience-store-centric sales -- but what about coffee makers? Coffee and energy drinks are frenemies at best -- and coffee purveyors have the history, the brand power, and the marketing strength to maintain a dominant share of pick-me-up beverages.

Starbucks (Nasdaq: SBUX) isn't content to defend its home turf, and has produced an energy drink that could undermine Monster's sales thanks to the sheer reach of its stores. You might not own a SodaStream, but you can probably find a Starbucks within a convenient distance. Can this line of attack break Monster's defenses in a way shelf-space competitors haven't?

It may not take long to get answers to these questions. As a growth investor, you should have your finger on the pulse of your favorite companies, but it's always a good idea to look for new multibaggers, too. The Fool's found three stocks that (we hope) might become the next Monster in your portfolio. Want to know more? All the information you need is in our latest and most popular free report -- click here for the information you need to make another great buy.