A number of the world’s best investors have said something to the effect that stocks don’t know where they’ve been, only where they’re headed.
 
So if a stock has doubled, tripled, quadrupled or more, shareholders shouldn’t assume there’s little or no further gain potential and that it’s time to sell. Indeed, they shouldn’t assume anything. Rather, they should ask themselves where the stock is most likely to go from here.
 
#-ad_banner-#It’s a question many investors probably have about one highly popular, very fast-growing stock that’s up an amazing 440% in past the five years. I’m sure you’ve heard of the company and its products — the best-known being its high-powered and sometimes controversial carbonated energy drinks. The firm also sells noncarbonated beverages like natural soft drinks and iced teas.
 
It got its latest boost in mid-August when management announced that Coca-Cola (NYSE: KO) planned to acquire nearly a 17% stake for $2.2 billion in cash. Assuming the deal closes by year-end or in early 2015 as expected, the company will also take over Coke’s energy drink lineup (this includes several brands like Full Throttle and Burn) in exchange for its noncarbonated beverages and two seats on its board.

News of the deal quickly propelled the firm’s shares almost 30% higher, and they’re now up about 32% year-to-date. I wouldn’t rush to take profits, though, because Monster Beverage Corp (NASDAQ: MNST) is capable of tacking on nearly another 100% to the gains it has already posted.

For one thing, the Coke buyout should help transform Monster into a far more potent international force by hooking it into Coke’s expansive and efficient global distribution network. Currently, international sales account for barely one-quarter of the company’s total revenue, whereas its main rival, privately-held Red Bull, generates two-thirds of revenue internationally.

However, Wells Fargo analysts see Monster’s foreign sales “significantly accelerating” thanks to Coke: “We believe Monster Beverage could generate 4-to-5 times its current international unit case sales by 2017, earlier than our original estimate of 2020.”

A unit case is 24 eight-ounce servings totaling 192 ounces, and Monster’s unit case sales exceeded 65 million globally in the second quarter alone. Unfortunately, the firm doesn’t break out domestic and international unit case sales in its financial statements.

But judging from the overall figure for Q2, a 4-to-5 times increase internationally would probably mean tens of millions in extra unit case sales each year. And with an average price per case of more than $10, Monster could easily be looking at hundreds of millions in additional annual revenue initially — along with the roughly $550 million it already generates internationally each year.

The macro picture certainly favors Monster. In Europe, for example, the energy drink market is expected to surpass $6.6 billion in 2018, up 40% from $4.7 billion in 2012, says Texas-based market research firm Micro Market Monitor.

Domestically, where Monster’s market share currently stands at 39% (roughly the same as Red Bull’s), total energy drink sales could jump more than 50% during the next four years, according to projections by the Beverage Marketing Corporation. At that rate of growth, the domestic energy drinks market would top $10 billion in 2018.

Another bullish factor for Monster is a penchant for launching successful new products, like Monster Rehab in 2011 and Monster Ultra Zero in 2013. Both have become top sellers. Ultra Zero, for example, has done well by attracting consumers who prefer a lighter, less sweet taste than traditional Monster products. Among the firm’s new products on the horizon is Ultra Sunrise, a carbonated energy drink with a blend of juices.

Also intriguing is the option for Coke to increase its ownership of Monster to as much as 25%, although it would need the approval of both companies’ boards to go beyond that limit within the next four years, according to Morningstar. There’s been speculation about a total buyout at some point, although this may never happen because Coke might prefer to avoid overexposure to the controversy sometimes associated with energy drinks.

Regardless, Monster appears quite capable of meeting consensus estimates for earnings per share (EPS) to rise 16% a year for the next five years to $4.47 in 2019. This implies 75% upside during that time, assuming the earnings multiple of 35 that analysts are projecting for the stock.

Risks to Consider: Although Monster maintains that its energy drinks are safe, there has been some very high-profile controversy in the media about potential health hazards, and Monster has been the subject of several lawsuits alleging harmful effects. If legal action against the company escalated enough, it could substantially hinder profitability, as could any new regulations limiting the use of energy drinks.

Action to Take –> We all know where Monster has been, and in my opinion it’s headed in the same direction as before — up.

But that’s in the long-term. Right now, at nearly $90, the stock trades for a very pricey 42 times trailing EPS of $2.13, putting it at greatly increased risk for a substantial pullback. At 29, its forward earnings multiple is unappealingly high, too. Still, in light of Monster’s growth potential, it’s reasonable to establish a position now, then add to it on the inevitable selloffs often seen with higher-risk momentum stocks like this one.

Monster has strong momentum, which is the first step toward being flagged for Alpha Trader. This is a rules-based system, which has been used to identify 71 stocks right before they jumped 10% in two weeks. And it’s tagged 21 stocks right before they jumped 20%. To see how it does it — and to get the name of a stock flashing “buy” right now, click here.