What happened

Shares of Celsius Holdings (CELH 0.73%) gained 22.2% in November 2022, according to data from S&P Global Market Intelligence. The maker of workout-boosting energy drinks saw two single-day price gains in the double digits last month.

So what

Celsius reported third-quarter results on the evening of Nov. 9. Your average analyst had expected earnings near $0.10 per share on revenue of roughly $162 million. Celsius smashed those estimates to smithereens with earnings of $0.67 per share. Top-line revenue doubled year over year to $188 million. The company delivered massive growth despite high operating costs and a snarled supply chain. Consumer demand was strong across Celsius' various distribution channels, although international sales dipped due to weak European results. The company is also expanding its presence in the convenience store and warehouse club markets. Celsius shares closed 13.4% higher the next day.

An 11.5% jump followed on Nov. 23, sparked by the company's multiyear sponsorship deal with the Professional Fighters League, a large mixed martial arts (MMA) organization. Celsius is now the league's official energy drink with naming rights to various events and access to brand ambassador services from the PFL fighters. But really, the earnings report was the most significant headline here, since it underscored the importance of a recently signed contract.

Now what

The company's 20-year distribution deal with PepsiCo has expanded Celsius' market reach dramatically and should continue to do so over the next few years. However, that silver cloud had a gray lining in the third quarter. Sales and marketing expenses skyrocketed from $22.6 million in the year-ago period to $199 million in the freshly reported quarter, mostly due to a $155 million termination fee paid to Celsius' former distributors.

Celsius is a consumer goods business whose stock has gained 53% year to date in this inflation-burdened economy. The distribution deal with Pepsi played a large part in that development. The distribution activity started on Oct. 1 and applied to one-third of the reporting period that was covered in November's earnings print. And it changed just about everything about Celsius' business, from its operating plan and marketing budget to cash flows and ownership structure.

November's 22% share price gain reflected Pepsi's game-changing impact, but it's also important not to get too excited right away. Celsius shares are trading at 14 times trailing sales and 146 times the company's book value -- sky-high ratios that could make even seasoned growth investors nervous. The stock looks overheated and might be due for an uncomfortable correction someday soon.