Celsius Holdings (CELH) stock price has suffered a harsh reversal, costing investors billions of dollars. It has crashed from the year-to-date high of $98.72 in May to about $32.40. In this period, its market cap has dropped from over $23.57 billion to $6.67 billion.
Celsius has been in an explosive growth
Celsius Holdings, a manufacturer of energy drinks, has experienced a rollercoaster in the past few decades. In 2010, NASDAQ delisted the company because its stock remained below $1 for a while.
It was then relisted and went nowhere for a long time. Things changed in 2022 when the company rebranded its messaging and announced a big partnership with PepsiCo, the second-biggest beverage company in the world.
As part of the deal, Pepsi bought an 8.5% stake and started offering distribution services, a situation that mirrors the Coca-Cola and Monster Beverages partnership. Coca-Cola holds a 16% stake in Monster and is its top distributor.
Such a deal is good for three main reasons. First, it means that Celsius Holdings does not need to invest vast resources in distribution, boosting its margins. CELH has gross margins of 50.45% and has more room to grow them in the long term.
Second, Monster can leverage Pepsi’s relationships to boost its sales. This is important since Pepsi is a global brand that sells its products in most countries. Therefore, while the initial part of the deal was on North America, Pepsi will help it grow internationally.
Third, the partnership means that Celsius Holdings can spend most of its resources on marketing and research and development (R&D).
This partnership helped Celsius go viral in the US, which pushed its annual revenue from over $75.1 million in 2019 to over $1.3 billion in 2023. It has also grown its annual profits to over $260 million.
The music has stopped
Celsius Holdings stock price has retreated as investors predict that its era of strong growth has ended. A key signal for this has been a report by Nielsen, which showed that its growth – and that of other brands was slowing.
In a recent note, which quoted Nielsen data, Beverage Insights noted that Celsius’ volume rose by 17.9% in the four weeks through August 10. There is a sign that the company is now offering discounts to boost its sales. A closer look at Amazon, where it also sells its products, shows that prices have retreated a bit.
Celsius energy drink volume up 17.9% (+23.2% for 12 wks) with a 7.8% avg price drop for 4 wks thru Aug 10, per NielsenIQ. C4 volume up 14.4% with a 1.2% avg price decrease. Alani Nu volume up 47.9% with a 6.3% avg price cut for 4 wks.
The most recent results revealed that Celsius Holding’s revenue growth has started to decelerate. Its quarterly revenue rose by 23% to $402 million while its half-year figure rose by 29% to $757 million. While a 23% revenue growth is a good one, it is also lower than its recent history.
In North America, revenue rose by 23% to $382 million while its international business grew by 30% to $19 million.
A key reason why Celsius Holdings stock surged is the view that it will be able to replicate its American success to international markets. In most cases, many brands that go viral in the US tend to do well internationally.
The international segment – UK and Canada – is still significantly small, contributing less than $20 million. It hopes that its sales to Australia, New Zealand, and France will help to supercharge its growth in the coming years.
Is it safe to buy Celsius?
It is quite difficult to predict whether Celsius Holdings will continue having double-digit growth in the coming years. That’s because it is unclear whether its beverages have a staying power or whether it is just a fad.
What is clear, however, is that Celsius Holdings has become fairly valued as its market cap has dropped to $8 billion. This valuation means that the company has a forward price/earnings multiple of 35.70, slightly higher than Monster Beverage’s 29.
Celsius is growing at a faster pace than Monster, whose forward revenue growth metric stands at 9.3%.
However, for now, I believe that Celsius Holdings’ valuation does not matter a lot as investors are focused on its growth metrics. The key data to keep watching will be Nielsen’s reports and its upcoming earnings in November.
Read more: Celsius stock: Cramer says ‘be careful in betting against’ $CELH
Celsius Holdings stock analysis
The weekly chart shows that the CELH share price formed a double-top pattern at $98.85 earlier this year. It then dropped below its neckline at $67.30, its lowest point in April.
The stock has crashed below the 50-week moving average and the ascending red trendline that connects the lowest swings in 2022 and 2023. This retreat means that bears are taking over.
The Relative Strength Index has moved to 31, meaning that it is about to enter the oversold level. Therefore, the stock will likely continue falling and then bounce back later this year, possibly after publishing its financial results in November.
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