Monster Beverage (click ticker for report: MNST) reported strong second quarter results this week. Second only to Red Bull, Monster saw sales grow 29% year-over-year to $678 million, slightly short of expectations. Earnings grew 24% year-over-year to $0.59 per share, a few pennies short of consensus expectations due to margin pressure.

The energy drink market continues to grow at a robust pace, as management cited a Nielsen study that said:

 “…sales in dollars in the energy drink category, including shots, increased 16.5% versus the same period a year ago. Sales of Monster grew 24.9% in the 13-week period, while sales of Red Bull increased by 19.3%. Sales of Rockstar increased by 7.2%, and sales of 5-Hour increased by 4.2%. Sales of Amp put down 2.4%, NOS increased 13.8% off a low base and sales of Full Throttle increased 6.5%.”

Though the US is a tremendously strong market for energy drinks, Monster is expanding its product offerings to emerging markets like Korea, Argentina and Chile, to name a few. However, the firm noted some weakness in rolling out product in Japan due to a bevy of reasons, including lower tolerance for damaged cans and different caffeine regulations.

A 20% sell-off following the company’s quarter would have implied both terrible results and a terrible outlook, but the firm reported neither, in our view. However, the firm disclosed (days after) an attorney general inquiry from an unknown state into the company’s marketing practices. We suspect this is the result of a girl who died from caffeine toxicity, and the enormous rise in caffeine-related emergency room visits. Though the firm denies any wrongdoing, regulatory speculation could weigh on shares going forward.

Regardless, we think shares of the energy drink maker are fairly valued at current levels. Though it scores a 3 on our Valuentum Buying Index, upside risk could result from a possible acquisition by Coca-Cola (click ticker for report: KO), which already distributes Monster products. We’d have to see a far more compelling valuation before becoming interested in shares for our Best Ideas Newsletter portfolio.