Investors in Celsius Holdings (NASDAQ: CELH) could use one of the company's heath-focused energy drinks for a pick-up right now. Shares of this once high-flying beverage industry innovator are down about 52% from their 52-week high.
Concerns that the company may be past its peak growth stage have resulted in a swift change in market sentiment. Still, there's good reason for investors to stay confident as Celsius still boasts plenty of positives, including climbing earnings. Such periods of extreme volatility can sometimes offer an opportunity to buy a high-quality stock at a discounted price.
Are shares of Celsius ready to pop and do they deserve a spot in your portfolio? Let's consider some of the key points.
The big picture remains positive
Despite the poor stock price performance in recent months, Celsius' actual operating and financial trends have been solid. In the first quarter (for the period ended March 30), the company reported earnings per share (EPS) of $0.27, more than double the $0.13 result last year. Q1 sales reached $356 million, up 37% year over year, an impressive level for any business.
At the same time, the market was expecting even stronger revenue growth closer to a 50% increase, which helps explain why the stock price rally fizzled out. Management cited an industry theme of companies optimizing inventory as impacting the cadence of shipment volumes.
That includes Celsius' partnership with PepsiCo, which accounts for 62% of the company's North American distribution. Compared to the exceptional sales trends in 2023 when its deal for national distribution went into effect, Celsius is now lapping a tough base of comparison.
What's more important is that the brand momentum remains intact. The metric that stands out when looking at Celsius is data showing it controlled an 11.4% market share of energy drinks in the multi-outlet retail segment covering sales channels such as grocery stores and club warehouses.
That figure has climbed from 7.2% since last year while competing products from Monster Beverage and privately held Red Bull have lost share over the period. One interpretation is that consumers are increasingly choosing Celsius drinks, creating a cohort of potentially lifetime loyal customers.
Image source: Getty Images.
Still early in the growth story
The bullish case for Celsius is that the company is still in the early stages of capturing a significant long-term growth opportunity. Currently, sales outside North America represent less than 5% of the business, highlighting a largely untapped international market.
Celsius only began selling its beverages in Canada this past January with an initial launch in the U.K. and Ireland in April. Planned expansion markets include France and Australia later this year, which should be a tailwind for results.
Celsius is also targeting the food service category, covering restaurants, lodging, and entertainment venues as part of its expansion strategy. Greater product placement in front of more consumers should improve the diversification of the company's earnings profile over time.
According to the average of Wall Street estimates, Celsius is forecast to grow sales by 26% for all of 2024 and 25% in 2025. The market also sees EPS accelerating to $1.07 this year and $1.38 in 2025 compared to $0.77 last year. Beyond any type of quarterly financial noise, Celsius' ability to keep delivering profitable growth should be supportive for the stock.
Time to turn bullish
I believe shares of Celsius deserve a buy rating following the deep sell-off, with the market likely overreacting to the normal growing pains of a transformative category leader.
The stock is trading at approximately 44 times its consensus 2024 EPS estimate. In my view, this premium valuation can be justified given the company's strong outlook. The stock is now at a discount compared to when it traded at a P/E ratio above 100 earlier this year.
The upside for Celsius is that the company has more room to grow in its valuation. It won't be a straight line higher, but the potential for the company to outperform a lowered bar of expectations could be a catalyst for its beaten-down stock.
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Dan Victor has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Celsius. 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.
