Celsius Holdings‘ (NASDAQ: CELH) phenomenal financial trajectory in recent years may lead one to suspect that the entire company is fueled by its own energy drink concoctions. Witness a staggering surge in sales over the past half-decade — nearly a 2,000% escalation to around $1.15 billion in the most recent 12-month reporting period.
In a world increasingly conscious of the perils of sugary beverages, the energy drink sector remains a robust market, predicted to outstrip economic growth by a significant margin. The allure of constant “innovation” in flavors and ingredients fuels this growth. As I sip on a Coca-Cola (NYSE: KO) “enhanced with AI,” I marvel at the rapidly evolving times we inhabit, where change is the only constant craved by today’s discerning consumers.
A Departure from the Usual
Steering away from my typical investment landscape, which leans heavily towards semiconductors and accelerated computing, I found a compelling reason to dip my toes into Celsius Holdings. After a long-standing allegiance to Disney (NYSE: DIS) that spanned over a decade (back to a time when a younger, equally geeky version of myself exhilarated at the prospect of a fresh Star Wars era), it was time to bid farewell.
Exiting my entire Disney stake was a decision long deliberated upon. Despite its venerable presence in my portfolio, Disney’s lackluster performance was undeniable. A year in the making, this move led me to seek new consumer-facing opportunities, with Celsius emerging as an intriguing replacement.
Unfurling New Horizons
Forming a symbiotic bond with PepsiCo for distribution has catalyzed Celsius’ ascent to new heights. PepsiCo’s contribution to Celsius’ distribution soared to almost 61% in the initial nine months of 2023 (from a mere 12% during the analogous 2022 period). This partnership bore fruits in the form of escalated revenues and budding profitability. Earnings per share and free cash flow per share, although restrained, may soon gather momentum post the commencement of the Pepsi agreement.
Furthermore, Celsius is only beginning to tap into the global energy drink market by sealing fresh distribution agreements overseas. Expanding on this scale demands a hefty investment, and meticulous execution by management, ushering in the potential for substantial sales growth in the forthcoming years.
Charting a Path Forward
While this stock comes with a lofty price tag, trading at over 40 times the anticipated forward one-year earnings per share, the onus lies on Celsius to sustain its expansion at a fervent pace. The prognosis is promising, with Wall Street analysts anticipating close to 40% sales growth by 2024, building upon the projected revenue doubling in 2023.
Commencing with a modest position, I aim to gradually augment my holdings should the narrative remain compelling. After a stint of observance from the periphery, Celsius appeared as a viable repository for long-term investments in the realm of consumer brands. The unfolding chapters will reveal the true narrative.
