Monster Running Out of Energy?

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Cans of Monster Beverage Corp. energy drinks are arranged for a photograph in San Francisco, California, U.S., on Monday, April 30, 2012. Monster Beverage Corp. surged the most in almost eight years after the Wall Street Journal reported Coca-Cola Co. is in talks to buy the maker of energy drinks.

The headlines on Monster Beverageare all about health concerns as at least one state’s attorney general investigates the "advertising, marketing, promotion, ingredients, usage and sale" of its products.

But there could be an even bigger issue facing the company: Monster’s growth may be showing the first signs of peaking.

This isn’t something obvious in the numbers: Quarterly sales growth continues at an impressive rate — up 28 percent last quarter.

And with market leading U.S. volume, the company (along with rival Red Bull) continues to gain share.

Yet under the surface, the energy drink category appears to be maturing. John Sicher, editor of Beverage Digest, told me that his research shows household penetration has fallen flat. He’s seen this before and it suggests that growth for the category as a whole is likely to slow over the next few years.

Health issues add another layer of concern.

Monster itself disclosed the attorney general investigation in a regulatory filing several weeks ago. It didn’t disclose which state, but the Wall Street Journal todaysaid it was New York, which also served subpoenas on Pepsi (which makes AMP) and Living Essentials, which makes 5-hour Energy Drink.

There had been speculation it was Maryland, where a teen died last year after drinking two 24-ounce cans of a Monster drink.

This isn’t the first time health issues have hit the industry, but this certainly appears to be the highest profile swipe. Not only is at least one state investigating, but Sen. Dick Durbin has asked the FDA to regulate caffeine in energy drinks. The FDA fired back, saying energy drinks don’t have more caffeine than coffee and other drinks.

My take: health issues are worrisome, but the concept of “all-in” for any “growth” product will be the ultimate horror show for Monster investors.

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