Celsius Holdings Faces Challenges, Yet Presents Opportunities for Long-Term Investors
2024 has not been kind to Celsius Holdings (NASDAQ: CELH). The company, known for its sugar-free energy drinks, reported a decline in revenue last quarter. This drop comes amid rising competition and shifts in strategy with its main distribution partner. Over the past half-year, shares have fallen a staggering 70% from their all-time highs, putting a strain on shareholders.
This immediate setback may actually present a buying opportunity for investors who are focused on the long haul. Let’s explore why Celsius Holdings could be an attractive addition to your investment portfolio as the holiday season approaches.
The decline in Celsius stock can be attributed to several factors. Initially, the stock was trading at an exceptionally high price-to-earnings ratio (P/E) exceeding 100 earlier this year. A stock with such a high P/E ratio typically carries significant risk, even if sales growth looks promising.
Another contributing factor is the slowdown in revenue growth. After several years of impressive double-digit increases, Celsius has seen revenue growth falter in 2024, with a significant 31% year-over-year revenue decrease last quarter.
This revenue drop may seem alarming, but it relates significantly to a distribution deal with PepsiCo. PepsiCo had cut back on inventory for Celsius products this year, creating a temporary impact on revenues rather than a loss of market share.
However, the outlook on market share appears challenging. After consistently increasing its market share in the energy drink category over the years, Celsius appears to have plateaued at around 12% in the United States in 2024. Competitive pressures from emerging brands such as Alani Nu and Ghost are taking a bite out of the market shares that Celsius once dominated.
Long-Term Growth Potential: International Expansion and Trends
Despite the current obstacles, such challenges may not be permanent. The inventory issues with PepsiCo are expected to stabilize over the next few quarters, aligning revenue with actual retail sales.
Market competition remains fierce, and it’s reasonable for investors to be cautious about Celsius regaining its previous market share. The reality is that no consumer packaged goods category tends to remain unchallenged; competition will always exist.
Nonetheless, several long-term growth drivers offer promise for Celsius over the next five years. The company is expanding into international markets, including English-speaking countries and France. Last quarter, international revenue surged by 37% year over year, a trend likely to continue.
The overall energy drink market is on the rise, attracting customers away from traditional beverages like coffee and soda. If Celsius can maintain its market share, this growth in the energy drink category could further boost its revenue in the coming years.
Additionally, consistent price increases within the consumer packaged goods sector provide Celsius with further growth opportunities. Currently, a 12-pack of Celsius cans retails for about $20 on Amazon. The company can gradually increase prices without significantly deterring customers, who incorporate these products into their daily routines.
CELH PE Ratio data by YCharts.
Investment Outlook: Why Celsius May Be a Buy Now
Considering these three growth drivers — international expansion, increasing market demand, and pricing flexibility — Celsius has the potential for 10% annual revenue growth over the next five years. With its current trailing revenue of $1.37 billion, projections estimate the company could reach sales of $2.2 billion in five years.
If Celsius achieves profit margins similar to those of Monster Beverage, around 25%, it would produce annual earnings of $550 million in five years. Consequently, this would lower the P/E ratio to 12.4, quite a contrast to the current market capitalization of $6.8 billion. For reference, the average P/E ratio for the S&P 500 (SNPINDEX: ^GSPC) stands at 31 today.
For those who believe in Celsius’s growth narrative, the stock may represent a valuable buying opportunity, especially after the recent 70% decline from its peak.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Brett Schafer has positions in Amazon. The Motley Fool has positions in and recommends Amazon, Celsius, and Monster Beverage. For more information, visit our disclosure policy.
The views and opinions expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.
