With a proprietary formula it touts as clinically proven to help burn calories and body fat, Celsius (CELH -2.67%) is taking the energy drink market by storm. Moreover, Celsius' drinks are are a chock-full of vitamins and minerals while containing no sugar or artificial preservatives. This combination of functional and health-focused benefits is fueling a stunning rise in the hard-charging company's sales and profits.
Perhaps unsurprisingly, Celsius' stock price is near all-time highs. Yet even more gains could lie ahead. Here are three reasons why.
1. A massive market opportunity
Sales of healthier beverages have soared during the pandemic. Functional drinks that promise to boost physical and cognitive abilities are in particularly high demand.
The energy drink industry is projected to generate annual revenue of $178 billion by 2030, up from $92 billion in 2022, according to Grand View Research. When combined with sales of sports drinks, the industry's revenue will top $240 billion by 2027, according to Statista.
Image source: Statista.
Even after years of torrid gains, Celsius commands just a small fraction of this enormous and still rapidly expanding market. The beverage maker's revenue surged 108% to $654 million in 2022.
There's clearly plenty of room for Celsius to continue to grow its sales and profits. This is particularly true in international markets. Roughly 95% of the company's revenue is currently generated in North America.
2. A powerful new growth catalyst
Celsius' impressive growth hasn't gone unnoticed. In August, PepsiCo (PEP 0.75%) invested $550 million in exchange for convertible preferred stock that gives the snack and beverage giant an opportunity to take an 8.5% stake in Celsius.
As part of the deal, Pepsi became Celsius' distribution partner. The partnership should allow Celsius to garner more shelf space in retail stores, as well as the gas stations and convenience stores that account for roughly 70% of energy drink sales, according to Celsius CEO John Fieldly. He also expects the collaboration to help Celsius improve its cost structure by streamlining its sales and marketing efforts.
The dynamic duo is already off to a strong start. Celsius' revenue soared 95% in the first quarter to $260 million. That was a notable acceleration from the 71% growth it experienced in Q4 of 2022.
Pepsi's distribution prowess could be particularly valuable in markets outside of North America, which currently account for only about 5% of Celsius' sales. By contrast, energy drink leader Monster Beverage generates nearly 40% of its revenue from international markets. If Pepsi can help Celsius bridge this gap, their partnership could be highly lucrative to both companies -- and their investors.
3. Explosive profit growth
While its sales nearly doubled in the first quarter, Celsius' gross profit increased by an even more impressive 111% to $114 million. The company's net profit, in turn, grew more than fivefold to $34.4 million, or $0.40 per share.
Celsius' gross margin, which rose to 43.8% from 40.4% in the year-ago period, benefited from cost savings as it shifted its operations to Pepsi's superior global distribution system. This integration remains in its early stages, and investors should expect Celsius to enjoy more efficiency gains in the coming quarters.
Celsius' profits, therefore, are likely to continue to increase at an even faster pace than its high-powered sales. And these rapidly growing earnings should help to propel the functional beverage leader's stock price to even loftier heights.
