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Why Celsius Holdings Stock Is Down 19% This Week

By Anders Bylund – Nov 12, 2021 at 1:18PM

Key Points

  • The stock has still nearly quadrupled in 52 weeks as the American market embraced Celsius' energy drinks.
  • This week's stock-price discount was big, but not generous enough to make the shares look affordable.

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The Swedish maker of health-conscious energy drinks is sliding down from last week's all-time highs. A mixed earnings report didn't exactly help.

What happened

Shares of Celsius Holdings (CELH 2.65%) have lost 19.3% of their value this week, as of 11:25 a.m. EST, according to data from S&P Global Market Intelligence. The fitness drink maker posted a mixed earnings report on Thursday evening that sped up the plunge, but Celsius shares have been sliding all week long.

So what

Third-quarter sales more than doubled year over year to $94.9 million. Breaking down the 157% jump in overall sales, you'll find that the North American market delivered a 214% revenue boost while international markets almost held firm with a 5% increase. Wall Street's consensus estimates called for total sales near $75 million.

On the bottom line, earnings according to generally accepted accounting principles (GAAP) fell from $0.06 to $0.03 per share. Here, our average analyst was looking for a repeat of the year-ago period's $0.06 per share.

A person drinks from a water bottle outside.

Water is one of Celsius' chief rivals. Image source: Getty Images.

Celsius earnings took a significant hit from unfavorable foreign exchange conversions. Furthermore, the company absorbed some additional production and distribution costs in order to keep growing in the middle of labor shortages in the American market and other supply chain challenges.

"In order to hit the majority of our orders during the quarter, we did have to sacrifice efficiencies on the margin side, which we believe are either one-time costs or short term in nature with specific identifiable processes we are implementing to improve our margin profile going forward," said CEO John Fieldly in the third-quarter earnings call.

Investors didn't appreciate this explanation and Celsius shares fell more than 10% on Friday alone. Again, this earnings-based drop only accelerated a week-long trend, as the stock had fallen 10.4% in the four-day period leading up to this event.

Now what

On the other hand, last Friday's closing price was an all-time high, 118% above Celsius' starting price in 2021. The company is barely profitable, focusing its financial assets and strategies on maximizing revenue growth during this period of explosive market gains. The massive run-up before this week's events set Celsius up in a difficult position, trading at 835 times trailing earnings and 44 times sales at Friday's peak.

The market as a whole isn't keen on risky growth stocks right now, due to economic concerns far outside the control of any particular company. Inflation is soaring, workers are leaving their jobs in search of greener pastures and better pay, and we still haven't really defeated the coronavirus pandemic. These issues weighed on Celsius this week, punctuated by a less-than-stellar earnings report. I don't know what's next but the stock still looks massively overvalued even after the recent slide.

Anders Bylund has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Celsius Holdings, Inc. The Motley Fool has a disclosure policy.

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