Is Celsius Holdings a Buy After Its Recent Decline?
Energy drink company Celsius Holdings (NASDAQ: CELH) has delivered remarkable returns for long-term investors, turning a $10,000 investment into over $1.7 million in the past decade. This success highlights how a strong product lineup, financial support, distribution, and effective marketing can elevate a company in the competitive beverage market.
However, Celsius’ impressive growth has recently faced challenges, with the stock plummeting by 61% over the last six months. This article will explore the factors that may make Celsius an attractive growth stock, as well as the risks that potential investors should keep in mind.
Image source: Getty Images.
Understanding Energy Drink Dynamics
Celsius captivates investors with its potential to shake up the energy drink market. The love affair with caffeine spans thousands of years, starting with tea in ancient China and evolving through the global rise of coffee. The introduction of carbonated caffeine drinks began with Coca-Cola in 1886, but today’s energy drinks have transformed the landscape.
In comparison to a standard Coke, which contains 34 mg of caffeine per 12 oz can, energy drinks from Monster Beverage provide 120 mg. Celsius takes it further, offering 200 mg, and even 270 mg for its Celsius Essentials line. These products claim to “accelerate metabolism” and “burn body fat,” attracting health-conscious consumers.
While more caffeine could mean a competitive edge, it’s not solely what determines success. If Celsius can deliver a superior experience that outshines rivals like Monster or Red Bull, the market potential is immense. This promise helped drive Celsius shares to new records earlier in the year.
Such optimism is not unfounded. Monster Beverage’s stock has soared more than 15 times since 15 years ago, with a current market cap of $49 billion—seven times larger than Celsius. The growth opportunity for Celsius is evident, but it faces steep competition. Unlike Celsius, Monster has established itself as a profitable enterprise with strong margins and a favorable market position.
MNST Operating Margin (TTM) data by YCharts.
Despite its recent decline, Celsius cannot simply be deemed inexpensive. Investing in Celsius involves a gamble on its future growth more than its current performance. If Celsius can capture market share from Monster, it may prove to be a better investment in the long term. But the flip side is that it still has to meet high expectations and not lose ground to competitors.
Investors often find themselves dazzled by a company’s future potential while overlooking possible pitfalls. Celsius is at a strategic juncture, with opportunities to expand its market presence or face stagnation.
The company’s partnership with PepsiCo has propelled its sales, yet many consumers are only just becoming aware of the brand. It’s unclear whether these new customers will switch from giants like Red Bull and Monster or integrate Celsius into a varied beverage choice alongside coffee or tea.
For Celsius, weighing risk against potential reward is crucial. Though recent results and future forecasts might appear enticing, they hinge entirely on the company’s growth trajectory and its ability to maintain momentum.
The Path Ahead for Celsius
In the world of consumer products like Celsius, grassroots investing can offer valuable insights. Observing shelf placements and marketing strategies at local stores often reveals how well a product is received. Personally, while I tend to favor coffee over energy drinks, my experience shows that Celsius is effectively marketed and offers a superior taste compared to its competitors.
However, appealing marketing isn’t enough for long-term success. Celsius must innovate its product line and foster a connection with consumers to encourage repeat purchases. A one-time buy from an occasional consumer doesn’t sustain the brand; Celsius needs to consistently impress customers to build loyalty.
Currently, Celsius stock appears more attractive following its recent downturn, but it still carries significant risks. Investors may want to consider starting with a small position or adding the stock to a watchlist until the company demonstrates its ability to secure long-term customer loyalty through mass distribution.
Should You Invest $1,000 in Celsius Now?
Before making an investment in Celsius, it’s essential to think critically:
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Daniel Foelber has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Celsius and Monster Beverage. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
