The accolades, analyst boosts, and stock upticks are coming fast and furious for Celsius Holdings (CELH 2.12%) these days. Just last week, we saw Wedbush boost its price target on the shares on Thursday, the same day Stephens initiated coverage with a bullish overweight rating.
A day later, it was Sean McGowan at MKM lifting his price goal on the shares from $130 to $160. Shares of the functional energy drink maker would go on to hit another all-time high on Friday.
Celsius has been a wealth-altering investment. It rose through an otherwise thorny 2022 for growth stocks and has now nearly doubled since the start of last year. Celsius stock is a 35-bagger over the last five years. Can the gains keep popping, or is the fast-growing company behind the fruit-flavored sparkling beverages about to go flat? Let's check the temperature for Celsius.
Making the workout work out
The reason Celsius has been a rock star -- even throughout last year when most of the high-flyers tumbled -- is that top-line growth has been phenomenal for the beverage company. Annual revenue growth has topped 40% in each of the last six years, and the pace is only getting stronger.
Revenue skyrocketed 95% in its latest quarter, and that follows back-to-back years of the top line more than doubling at Celsius. The business has exploded as Celsius' appeal has extended beyond the fitness centers and nutrition stores where its cans started to catch on with their proprietary MetaPlus blend that helps accelerate metabolism and increase caloric burn. Celsius is now available across most supermarkets, mass-market retailers, and convenience stores.
Image source: Getty Images.
The wingspan doesn't have to end there. PepsiCo (PEP -0.62%) entered the picture last summer, investing $550 million for an 8.5% convertible preferred stake in Celsius. It made the pop star the new domestic distribution partner for Celsius, with the potential to play a part in international growth that currently accounts for a mere 4% of the sales mix.
This isn't just a revenue growth story. Earnings more than quadrupled in its latest quarter.
The reasons to buy are fairly clear. Celsius is growing quickly, and there's a world out there waiting to be conquered. Its fan base is broadening as quickly as its product line. Betting against Celsius has proven costly to bears -- it has been one of the market's biggest gainers over the past five years -- and short interest has risen to a 52-week high.
There are also reasons to consider selling. There would be competitive risk if someone were to put out a more effectively marketed path to liquid thermogenesis. There could be health concerns, as we've seen for other energy drink companies. There's also valuation risk. Celsius isn't cheap.
Celsius has finally broken out of the red, and the multiples are rich. Celsius is trading for 67 times next year's projected earnings and 47 times the following year's profit target. It's not just an opened Celsius can that feels bubbly right now.
There are also reasons to hold, especially now that we're starting to see PepsiCo open new outlets for the product. Hitting a new high in short interest just as its stock hits a similar top could also trigger a short squeeze where the stock is bid higher as those betting against Celsius reverse their positions.
In the end, it's hard to sway from the bullish camp. Celsius has momentum and explosive growth. Shelling out 15 times trailing revenue for a beverage stock is a lot, but the same can be said for the revenue growth and international opportunities waiting for Celsius.
