What happened
Shares of energy-drink company Celsius Holdings (CELH 1.63%) were up 18.8% in June, according to data provided by S&P Global Market Intelligence. The stock got a lift as Wall Street raced to raise price targets throughout the month.
Third-party industry sales data suggests well over 100% volume growth for Celsius in June. And this is what Wall Street was responding to when it was raising price targets.
For example, Wedbush analyst Gerald Pascarelli raised his price target for Celsius stock by 19% to $155 per share on June 22, according to StreetInsider. Similarly, Stifel analyst Mark Astrachan raised his price target by 20% to $155 per share on June 7, according to The Fly.
So what
In the first quarter of 2023, Celsius generated revenue of almost $260 million, which was up 95% year over year. That was a slight slip from the 108% year-over-year growth it enjoyed in 2022. However, third-party data suggests Celsius is regaining momentum.
In short, Celsius' business growth just isn't cooling off. And as it keeps surprising investors, expectations continue to be revised higher.
It's tempting to think Celsius' stock could be overvalued here considering it's gone up so much already. For perspective, the stock is up over 1,200% in just the past three years. And shares currently trade at a pricey price-to-sales (P/S) valuation of almost 15.
However, this valuation may not be as outrageous as it first seems and Wall Street may indeed be justified in raising its price targets for Celsius stock. For a baseline valuation, I suggest using Monster Beverage as a comparison. The company is more mature and is in the same industry.
As the chart below shows, Monster's P/S ratio has held fairly consistent at around nine over the last eight years.
CELH PS Ratio data by YCharts.
Celsius stock trades higher than Monster now. But if the company is indeed doubling its business as we speak, then its valuation will be comparable to Monster in short order.
Now what
Celsius will report financial results for the second quarter of 2023 only by early August. And when it does, its financial results will likely differ somewhat from what the third-party research predicted -- after all, it can't be expected to be perfect. But if third-party research is showing over 100% growth, it's likely pretty directionally correct. Therefore, Celsius' growth rate could indeed be re-accelerating after barely cooling off in Q1.
Given its growth and its ongoing potential, the run-up with Celsius stock looks justified to me. And if the company can keep finding growth in new markets -- perhaps internationally -- then shareholders could have more market-beating gains in store over the long haul.
