What happened
Shares of health-conscious energy drink brewer Celsius Holdings (CELH 2.12%) bubbled higher on Wednesday, following a hyper-caffeinated earnings report. As of 11:30 a.m. ET today, the morning's gain peaked at 22%.
So what
Second-quarter sales rose 112% year over year, landing at $326 million. At the same time, economies of scale plus lower packaging and ingredient costs lifted Celsius' gross margin from 39% to 49%. As a result, earnings per diluted share skyrocketed from $0.12 to $0.52, a 333% year-over-year increase.
Your average Wall Street analyst would have settled for earnings near $0.29 per share on top-line revenue in the neighborhood of $275 million. Celsius left those targets far behind.
Now what
The distribution partnership with PepsiCo (PEP -0.62%) is paying rich dividends for Celsius. Thanks to Pepsi's dominant bottling and shipping network, Celsius is quickly becoming a serious challenger to sector giants Red Bull and Monster Beverage (MNST 0.41%), already overshadowing Red Bull's share in certain market channels.
It should be said that other challengers have reached this high before, but the fizz never seems to last. For example, after a lawsuit-driven bankruptcy, the exercise-oriented Bang Energy brand is now a part of the Monster empire. But with the powerful Pepsi system by its side, an advantage Bang never had, Celsius needs to spread the marketing message of readily available, better-health options to energy drink consumers.
Celsius shares have now gained 64% year to date and 708% in three years. So far, the stock is living the dream of a successful growth story. It is also quite expensive, trading at 139 times earnings and 14 times sales.
I respect high-octane growth stocks like Celsius, but these prices are a bit rich even for my taurine-flavored blood. It's probably best to let the boiling Celsius brew cool down. I'd rather take a second look at the more modestly priced Monster stock right now.
