If you see Celsius Holdings (CELH -0.50%) executives cracking open cans of the sparkling beverages they distribute later this week, it's only because they're hoping to go on a healthy sprint on Wednesday afternoon. The company behind the functional energy drinks that help you burn calories ahead of a workout will be reporting its fourth-quarter results after the close on the first trading day in March.
Speed has been the name of the game for Celsius lately. It ended its streak of five consecutive quarters of triple-digit revenue growth last time out. It managed to post a year-over-year increase of only -- checks notes -- 98% in the third quarter. Business should continue to decelerate, but it's still growing several times faster than its two larger rivals, Red Bull and Monster Beverage.
Armed with a global pop star that recently signed on as both a distribution partner as well as a minority shareholder, Celsius is in good shape heading into this week's telltale report. Will the stock follow suit and put on its running shoes this week? Celsius shares bucked the market malaise that plagued growth stocks in 2022 by posting market-thumping returns. After a sluggish start to 2023, a strong report could have Celsius bouncing back this year.
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Sparkling returns
Thermogenesis is a big word for a small stock with big potential. It literally means the creation of heat. The growing Celsius line of carbonated fruit-flavored beverages contains the proprietary Meta Plus blend of ingredients that safely raises your body temperature half a degree. The process boosts a body's metabolism, and in the process the helps drinkers burn additional calories.
The ideal time to maximize the product benefits is just minutes before an active workout, but the country has become smitten with the taste of the fast-selling sparkling drinks. With Celsius available through a growing number of mass market retailers and grocery stores, it's easy to get your fix. As the popularity of svelte cans continues to bubble up, sales and the stock price have followed suit.
Beverage stocks in general did a great job of avoiding the brutal market sell-off in 2022, but Celsius led the way with the stock's 40% pop last year. Beyond its head-turning growth, Celsius was legitimized as a beverage company when PepsiCo (PEP -0.41%) invested $550 million last summer for an 8.5% convertible preferred stock stake in Celsius. The deal would also make the beverage giant the primary distribution partner for Celsius in the U.S. and its preferred partner overseas.
Celsius as an investment is lagging the market so far in 2023, but a strong showing this week can help it get back on track. Analysts see a narrowing loss on 72% in revenue growth. The top-line gain would be impressive if you didn't know that it grew its business by 98% or better in each of the six previous quarters, but now it's just a matter of seeing if Celsius can exceed those expectations. PepsiCo likely hasn't helped Celsius move the needle internationally, but third-party retail tracking data of Celsius product sales has been impressive. Wall Street was only betting on a 71% increase in revenue for the third quarter, and you saw how well that played out.
It's not just the top-line gains that will have to impress shortly after Wednesday's end of trading. Analysts see a solid return to profitability this year, after a one-time hit to switch out its distribution partners with PepsiCo dented reported earnings. A cautionary tone on bottom-line improvement could derail what should be solid revenue growth. The stock may be trading lower this young year, but expectations are high. Wedbush analyst Gerald Pascarelli upgraded the stock earlier this month to outperform, boosting the price target from $95 to $115 in the process. Celsius isn't just a darling among beverage stocks. Pascarelli sees Celsius as the best growth story in the massive consumer packaged goods market.
This isn't just a play on the post-pandemic recovery. Celsius has now rattled off six straight years of annual revenue growth topping 40%. However, momentum has certainly picked up for the functional beverage company in the new normal. It's time to crack open the can and see if thermogenesis can heat up the stock again this week.
