Celsius Holdings (CELH -0.04%), an energy-drink maker founded in 2005, is often compared to its larger competitor Monster Beverage (MNST 1.12%). Celsius is a lot smaller than Monster but growing a lot faster, and it specializes in "healthier" sugar-free energy drinks that are made from natural ingredients.
Celsius went public (for the second time) in 2017 and gained steam as more consumers looked for healthier alternatives to Monster and Red Bull's sugary energy drinks. Over the past five years, Celsius stock skyrocketed nearly 2,000%, as Monster's stock advanced just over 50%.
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Celsius' breakneck growth caught the attention of PepsiCo (PEP 3.62%), which invested $550 million in the energy-drink maker last year and became its preferred distribution partner in the U.S. market. That deal bore a striking resemblance to Coca-Cola's $2.15 billion investment in Monster in 2015.
Celsius could still have plenty of room to grow since it's only expected to generate about a tenth of Monster's revenue in 2022. But should investors actually invest in this high-growth underdog instead of Monster?
The differences between Celsius and Monster
Celsius initially launched its energy drinks in Sweden before expanding into North America, which has become its largest market and brought in 94% of its revenue in the first nine months of 2022. It says all of its drinks are "completely vegan, free of carbohydrates" and only contain "natural flavors and colors."
Monster was once known as Hansen's, which also sold fruit juices and natural sodas, along with its energy drinks. Hansen's rebranded itself as Monster in 2012, then transferred all of its non-energy drinks to Coca-Cola in 2015.
In return, Coca-Cola transferred all of its energy drink brands -- including NOS, Full Throttle, Burn, Mother, BU, Gladiator, Samurai, Nalu, BPM, Play, Power Play, Ultra, and Relentless -- to Monster. That transformation turned Monster into the biggest publicly traded energy-drink maker in the world. It shares a near-duopoly with privately held Red Bull and is more geographically diversified than Celsius, with only 65% of its revenue coming from the U.S. and Canada in the first nine months of 2022.
Simply put, Celsius focuses on health-oriented consumers in North America, while Monster is a much broader play on the global energy-drink market. However, Monster has also been expanding its lineup of zero-sugar and low-calorie versions, as well as launching new health-oriented energy drinks like True North, to counter newcomers like Celsius.
According to Nielsen's data from last October, Celsius claimed 2.6% of the domestic energy-drink market. Monster's namesake brand held a 31.1% share, while Red Bull remained the market leader with a 36.1% share.
Which company is growing faster?
Between 2016 and 2021, Celsius' annual revenue rose from $23 million to $314 million, which represented a jaw-dropping compound annual growth rate (CAGR) of 69%. Analysts expect its revenue to rise 109% to $655 million in 2022, then rise another 51% to $990 million in 2023.
That growth will mainly be driven by its domestic distribution deal with PepsiCo, which might pave the way toward a broader international expansion. Celsius recently struggled with slower sales growth in the Nordic region as it grappled with supply chain and currency headwinds, but it's easily offset that slowdown with its soaring sales in North America.
Between 2016 and 2021, Monster's annual revenue rose from $3 billion to $5.5 billion, representing a CAGR of 13%. Analysts expect its revenue to grow 16% to $6.4 billion in 2022 and rise 12% to $7.1 billion in 2023.
Monster's sales declined across Asia over the past year, mainly due to ingredient problems in Japan and COVID-related disruptions in China, but it offset that pressure with its growth across all its other regions. The company's market share also continues to rise (partly at Red Bull's expense), even as it mentioned Celsius more frequently as a competitor during its latest conference calls.
Profitability and valuations
Monster's net income rose from $713 million in 2016 to $1.4 billion in 2021, representing a CAGR of 14%. Analysts expect its net income to decline 11% to $1.2 billion in 2022 as it racks up higher supply chain and currency-related expenses, but still rise 28% to $1.6 billion in 2023.
Celsius generated slim profits from 2019 to 2021 but turned unprofitable in 2022 after incurring a one-time charge from terminating a previous distribution deal to partner with PepsiCo. However, analysts expect it to generate a net profit of $84 million in 2023.
Investors should be skeptical of those expectations since they could easily be derailed by a global recession or other unforeseen macroeconomic challenges. But based on those estimates, Monster trades at 34 times forward earnings and 7 times its sales. Celsius trades at more than 100 times forward earnings but just 9 times next year's sales.
Monster may look like the safer bet, but Celsius' rapid growth, disruptive business strategy, reasonable valuation, and multibagger growth potential shouldn't be ignored. Celsius isn't a stock for conservative investors, but I'd definitely buy it instead of Monster -- which merely looks comparable to other diversified beverage stocks like Coca-Cola and PepsiCo.
