Florida-based Celsius Holdings (NASDAQ: CELH) makes energy drinks with differentiated properties. According to the company, these drinks are “thermogenic,” meaning that consumers who drink them burn calories even while resting. This claim, as well as a lineup of bold flavors, helps Celsius stand out in a crowded space.
Celsius’ rise from obscurity has been stunning. Initially, the challenge was simply getting in front of consumers. But once that happened, sales quickly built up momentum over the last decade, with revenue rising 15,000%. Now that’s phenomenal.
CELH Revenue (TTM) data by YCharts.
Celsius was already on a hot path. But in recent years, it got an added boost due to missteps from competitor Bang Energy. This energy-drink brand flip-flopped on a distribution deal with PepsiCo, which was costly. And it also lost some court cases to Monster Energy. Out of nowhere, Bang was suddenly bankrupt.
Bang reportedly had $1.4 billion in sales in 2021. But it was only at a $250 million annual-revenue run rate as of the fourth quarter of 2023, according to new parent company Monster.
Celsius swooped in to capture market share as Bang went down. And it even scooped up Bang’s lost distribution deal with Pepsi, sending Celsius’ revenue skyrocketing.
Celsius stock is now down 27% from its high in 2024, as of this writing. Here’s what investors should know.
Is this a buying opportunity?
With investing, I believe both the growth of the business and the valuation are important. A golden growth stock might turn out to be a bad investment if the price is too high. But a bad business outlook won’t make a good investment regardless of how good of a “deal” it is. Therefore, the business is more important than the valuation.
Let’s examine the business outlook and the valuation for Celsius stock to determine if its 27% drop from 2024 highs makes it a buying opportunity.
On the business side, Celsius’ revenue may be up 15,000% in the past 10 years, but it still has plenty of room to grow and isn’t showing signs of slowing. Revenue in 2023 was up 102% year over year to $1.3 billion. For perspective, that included impressive 95% growth in Q4.
Among two growth options in 2024 are international expansion and greater entry into food-service chains. Because of its growth opportunities, Celsius can generate $1.7 billion in revenue this year, according to consensus estimates from S&P Global Market Intelligence.
Celsius isn’t just growing; it’s also earning nice profits as well. In 2023, it had net income of $182 million, which was nearly a 14% profit margin. It’s possible its margin takes a step back this year as it enters new markets. That tends to be a pricey thing to do. But its results in 2023 show what it’s capable of, and that bodes well long term.
I’d say Celsius is still a golden growth stock because of its growth opportunities and profit potential. But turning to valuation, the 27% drop for Celsius stock needs additional context. Even with the drop, shares are still up 28% year to date and up 140% in just the past year.
Investors need to keep their heads with Celsius stock; this isn’t a rare dip to rush out and buy. The stock’s valuation is simply back to where it was just a few weeks ago. For this reason, there shouldn’t be any pressure to buy in fear of missing a rare entry point.
As a final consideration, Celsius stock has a price-to-sales ratio of just less than 13 as of this writing. Normally, I’d say that’s an expensive valuation. But high-profit margins warrant higher valuations. Moreover, the company is still growing by leaps and bounds, which can justify the higher price tag.
To summarize, Celsius’ valuation looks high on the surface, but it shouldn’t be a deal breaker for investors. The price tag makes sense given the business’s trajectory and the long-term opportunity. In my opinion, this is a growth stock to buy.
Should you invest $1,000 in Celsius right now?
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Jon Quast has no position in any of the…
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