Shares of beverage company Celsius Holdings (CELH -3.37%) are up roughly 2,500% over just the past three years. The stock skyrocketed from less than $4 per share before the COVID-19 pandemic, landing where it trades today at over $85 per share. During the furious stock market rally of 2020 and 2021, stocks often jumped this much. But many gave back their gains, making Celsius stock a rare exception.

Investors may think it's too late to buy Celsius stock considering that it's already up so much. But management believes its growth story is far from over, in part thanks to its recent partnership with PepsiCo. In fact, CFO Jarrod Langhans recently said, "With the latest injection of funds from our PepsiCo transaction, we have sufficient firepower to take our business to the next level."

How Celsius makes money

Celsius sells its namesake beverage line in a variety of flavors, calling them "calorie-burning functional energy drinks." This appeals to health-conscious, fitness-focused consumers. Therefore, Celsius sells its energy drinks in many health clubs and gyms. 

Celsius also distributes its products online, in grocery stores, and in convenience stores. For perspective, wholesale club Costco and e-commerce giant accounted for 13% and 10%, respectively, of the company's revenue in 2021. Regional grocery store chain Publix is also a big distribution channel for Celsius. Therefore, many sales appear to be an intentional part of consumers' grocery spending rather than one-off impulse buys at gas stations. This is a good sign in my opinion.

For some perspective on its distribution growth, Celsius products were in 65,000 locations at the end of 2019 -- an impressive 60% increase from the end of 2018. But as of the second quarter of 2022, Celsius products are now in a whopping 169,000 locations. And it believes it has much more room to grow from here, aided by its new distribution partner Pepsi.

Filling these growing distribution channels is a large factor in Celsius' outsized growth story. In 2020, the company's revenue grew 74% year over year, followed by 140% growth in 2021. And net sales in the first half of 2022 are up 150% from the comparable period of 2021.

Celsius's financial condition

Not only is it a high-growth stock, but Celsius is also profitable. Its gross margin fell in Q2 because of the temporarily high cost of beverage cans due to supply chain shortages and because of high gas prices that impacted shipping logistics. However, it was still profitable in Q2 nonetheless with a net income of $9.2 million -- a net profit margin of about 6%.

It's important to note that Celsius trails larger rivals like Pepsi and Monster Beverage Corporation -- its most direct public competitor -- on both gross margin and net margin.

CELH Gross Profit Margin (Quarterly) Chart

CELH Gross Profit Margin (Quarterly) data by YCharts.

Pepsi and Monster enjoy efficiencies of scale that Celsius doesn't have yet. Therefore, Celsius' margins could improve as it gains greater distribution -- something for shareholders to monitor. But given its high revenue growth and steady profitability, it's fair to say the company is strong financially.

Celsius's balance sheet is strong as well. The company has no debt and has roughly $60 million in cash. This might not seem like much liquidity, but it's close to an all-time high. Moreover, this doesn't include the $550 million investment it just got from Pepsi. In short, Celsius suddenly has a cash position that's an order of magnitude greater than what it's used to working with. And that bodes well for the company's future growth prospects.

Should you buy Celsius stock?

In my opinion, Celsius is a quality company for some of the reasons we've just explored. However, the stock trades at a premium valuation, which could limit future returns. The price-to-sales (P/S) valuation as of this writing is 14, well above the current P/S valuation of Monster. It's also well above the average P/S valuation for Monster over the past 10 years.

MNST PS Ratio Chart

MNST PS Ratio data by YCharts.

On the one hand, you might say Celsius stock deserves to trade at a premium to Monster due to its superior growth. On the other hand, Monster has higher profit margins, which also qualifies that stock for a rich valuation ratio.

Personally, I'd like to see Celsius stock at a more attractive price. However, the company can overcome its lofty valuation by continuing to deliver profitable growth.

Speaking of ongoing, profitable growth, 39% of Monster's sales came from outside the U.S. in the second quarter of 2022, compared to less than 6% for Celsius. Management just announced that Pepsi will not only help it grow its presence in the U.S. but also internationally. It's likely too late to enjoy parabolic returns like those who bought three years ago. But international growth could still be enough to fuel market-beating returns.

For this reason, investors who understand the valuation risk may slowly build a position in Celsius stock over the next couple of years, using dollar-cost averaging to avoid possibly buying an entire position at a fleeting high.