Celsius Holdings Stock Is Up 600% In 7 Months, But The Rally Is Not Yet Over

Despite a massive rise of almost 7x since the March lows of this year, at the current price of over $21 per share we believe that Celsius Holdings stock (NASDAQ: CELH) still has some upside left. The stock price of Celsius Holdings – a company that develops, markets, distributes, and sells functional calorie-burning fitness beverages in the United States and internationally – has rallied from $3 to $21 off the recent bottom compared to the S&P 500 which increased by about 58% from its recent bottom. The stock was able to beat the broader market over the last 6 months mainly after posting a much better than expected Q1 and Q2 2020 performance. Additionally, the US government’s announcement of a string of measures to keep businesses afloat along with the gradual lifting of lockdowns has led to expectations of a rise in consumer demand and reduction in supply bottlenecks.

Though the stock is more than 300% above the level at which it was at the end of 2017, we think it has still not reached its fair value and could see a further uptick in the near term. Our dashboard What Factors Drove 308% Change In Celsius Holdings Stock Between 2017 And Now? provides the key numbers behind our thinking.

Some of the stock price decline seen between 2017 and 2019 was mainly due to the drop in the company’s P/S multiple. Though the company’s revenues more than doubled from $36.2 million in 2017 to $75.1 million in 2019, the stock did not see a corresponding rise as CELH continued to report losses in 2017 and 2018. Its operations turned profitable in 2019, after which the P/S multiple has been on an upswing. The multiple shot up from 4.5x in 2019 to almost 20x currently.  A higher multiple reflects expectations of higher revenue in the near term as the company enters into new agreements and has adapted well to changes in its operations to suit the current situation of a pandemic.

What’s The Upside Trigger?

The global spread of coronavirus and the lockdowns which affected industrial and economic activity, led to an adverse effect on consumption and consumer spending. However, Celsius seems to have largely been immune to the current crisis. As consumer preferences are changing, people are moving away from carbonated soft drinks, which has led to a rise in demand for CELH’s products. This was reflected in the company’s Q1 and Q2 2020 results where it registered a y-o-y revenue growth of 90% in the first six months, beating analysts’ estimates. Additionally, gross profit jumped 106% due to higher revenue and cost efficiencies. Through new and expanded relationships with US retailers and additional direct store delivery (DSD) distribution agreements, CELH has expanded its presence and increased throughput to consumers during the first six months of the year.

CELH has been emphasizing online buying options through new E-commerce partners as consumer buying has further shifted to online platforms during this pandemic. The management has announced that its focus is to expand CELH’s product reach nationwide and to continue adapting to changing consumer buying behavior.

The actual recovery and its timing hinge on the broader containment of the coronavirus spread. Our dashboard Trends In U.S. Covid-19 Cases provides an overview of how the pandemic has been spreading in the U.S. and contrasts with trends in Brazil and Russia. In the post-Covid scenario the company’s revenue is expected to continue recording healthy growth while margins are projected to improve. This could lead to its P/S multiple rising further in the near term, thus possibly driving its stock price higher to about $26. This reflects an upside of close to 25% from its current level.

For further insight into the beverage industry, you can see a comparative analysis of PepsiCo vs. Coca-Cola and why we feel Keurig Dr Pepper is better placed compared to Coca-Cola.

What if you’re looking for a more balanced portfolio instead? Here’s a high quality portfolio to beat the market, with over 100% return since 2016, versus 55% for the S&P 500. Comprised of companies with strong revenue growth, healthy profits, lots of cash, and low risk, it has outperformed the broader market year after year, consistently.


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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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