Where Will Celsius Holdings Stock Be in 1 Year?

Shares of Celsius Holdings (CELH -1.41%) more than doubled over the past 12 months as it dazzled investors with its dizzying growth. The energy drink maker's revenue rose 74% in 2020, 140% in 2021, and 126% year over year in the first nine months of 2022.

For the full year, analysts expect its revenue to increase 109% to $655 million. Those numbers are astounding, but can Celsius' stock soar even higher over the next 12 months? Let's review its core business model, its expansion plans, and its valuations to find out.

What sets Celsius apart from other energy drinks?

Celsius, which was founded in 2005, produces what it calls "healthy" energy drinks made with ingredients like green tea and ginger. It provides an energy boost with a mix of caffeine and amino acids instead of sugar. It claims its drinks have "thermogenic" properties that are "clinically proven to accelerate metabolism and burn body fat" while exercising.

Image source: Getty Images.

Celsius carved out a niche, especially among younger and active consumers, in energy drinks with its health-oriented approach. Other popular energy drinks, like Red Bull and Monster (MNST -1.46%), are often associated with aritifical ingredients, high doses of sugar, and heart palpitations.

Celsius' rapid growth caught the attention of PepsiCo (PEP 1.65%), which bought an 8.5% stake in the company for $550 million last August and became its preferred U.S. distribution partner. That deal was similar to Coca-Cola's (KO 0.68%) $2 billion investment in Monster in 2014.

How rapidly is Celsius growing?

Celsius generates most of its revenue in North America, and the growth of that core market accelerated over the past two years. Its distribution deal with PepsiCo should keep feeding that. But the gains in its international business cooled off as it dealt with supply chain challenges, currency headwinds, and declining sales in Europe.

Data source: Celsius Holdings. YOY = Year-over-year compared to same period.

Celsius believes its domestic distribution deal with PepsiCo could pave the way toward a broader international deal, which could breathe fresh life into its overseas business. It also plans to roll out new products in new overseas markets throughout 2023. But for now, the North American market can easily drive the company's near-term growth.

But is this growth sustainable?

Celsius' top-line increase is impressive, but its gross margin fell 580 basis points to 40.8% in 2021, then dropped 90 basis points year over year to 40.3% in the first nine months of 2022. It attributed that compression to rising raw material costs, inflation across its supply chain, and higher freight costs. But it expects its gross margins to rise again in the fourth quarter.

Celsius generated slim profits on the basis of generally accepted accounting principles (GAAP) from 2019 to 2021. It racked up a net loss of $170.7 million in the first nine months of 2022 -- mainly from a hefty one-time charge from terminating a deal with its previous distributor to transition to PepsiCo's network.

Excluding that charge, its stock-based compensation, and other one-time expenses, adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) actually increased 152% year over year to $57.5 million in the first nine months of 2022. Analysts expect adjusted EBITDA to rise 144% to $82.1 million for the full year.

Does Celsius' stock still have room to run?

In 2023, analysts expect Celsius' revenue and adjusted EBITDA to grow 51% and 92%, respectively. They also expect it to generate a GAAP net profit of $84.3 million as it laps the distribution termination charges.

Based on those estimates, which we should take with a grain of salt, Celsius' stock trades at eight times its 2023 sales and 100 times its adjusted EBITDA. In terms of revenue, which generally matters more than profits for hypergrowth stocks, Celsius still looks reasonably valued.

Monster, which is growing a lot slower than Celsius, trades at seven times its 2023 sales. Since Celsius is only expected to generate about a tenth of Monster's revenue in 2022, it might still have a lot more room to grow over the next few years. Its relative strength throughout the bear market also suggests that investors are still optimistic about its long-term prospects.

I don't think Celsius' stock will double again in 2023, but it should rise higher by the end of the year if the company maintains its current growth trajectory. Moreover, an overseas expansion of its distribution partnership with PepsiCo, takeover buzz, or the end of the bear market could all bring more growth-oriented investors back to the stock.