Rising energy drink company Celsius Holdings (CELH 2.12%) has made beating the market look easy for some time now. Its shares are up 95% over the past year, an impressive 770% over the past three years, and a jaw-dropping 4,000% over just the past five years.
Naturally, investors might sit here reading this, sighing because they feel they've missed the boat. It would have been nice to buy the stock when it cost a fraction of what it trades at today.
So is the opportunity over? Should investors buy, sell, or hold the stock? Don't be so quick to write off Celsius. Peeling back the numbers shows an exciting growth trajectory.
PepsiCo tie-up is paying off big time
Celsius is an energy drink aimed at active people, and it advertises its use of more natural ingredients than its competitors. Sales have steadily built momentum despite being a newcomer in a competitive industry. Revenue growth began accelerating in 2019 but took off during the pandemic.
Beverage giant PepsiCo inked a partnership with Celsius last year to invest in the company and give it access to its vast distribution network. It's helped Celsius maintain stellar revenue growth, the primary reason behind the stock's huge returns.
CELH Revenue (Quarterly YoY Growth) data by YCharts
Sales are up 104% year over year halfway through 2023, putting the company on pace for roughly $1.1 billion in revenue this year. Analysts believe that could grow to $3 billion in annual sales by 2026. Additionally, Celsius products hold the top two spots on Amazon's best-seller chart in the energy drink category, further evidence that the company is taking market share.
Celsius was becoming increasingly popular before the PepsiCo deal. Still, the uptick in growth is a sign that PepsiCo has poured gas on the fire and accelerated progress, which makes sense, given the company's massive footing in the broader beverage space.
The company could grow into its big shoes
Analysts believe Celsius will do $1.86 in earnings per share this year, valuing the stock at a lofty price-to-earnings ratio (P/E) of 90. That's multiples higher than the S&P 500, meaning the market is paying a massive premium to own shares. Fortunately for long-term investors, shares have recently dropped from over $200 down to about $173 due to some turbulence in the stock market.
The valuation is a steep asking price, but the company's potential earnings growth could make that valuation easier to swallow. Since the PepsiCo deal, Celsius has seen gross margins and free cash flow approach all-time highs. Such strong revenue growth should trickle down to the bottom line, too.
CELH Gross Profit Margin data by YCharts
Analysts estimate that Celsius' earnings will grow by around 45% to 50% annually over the next two years. That's a price/earnings-to-growth (PEG) ratio of about 2, which illustrates that Celsius isn't a bargain, but it can certainly grow into its current price tag and then some over the coming years. A long-term investor looking five years ahead can do well if the business keeps performing like this.
Buy, sell, or hold?
Celsius is a rapidly growing consumer products brand. Selling shares doesn't make sense because the valuation isn't overblown, given the company's compelling performance. Still, I don't blame value-conscious investors for shying away from buying the stock because it isn't an obvious value. Holding might be the best course of action if you already own it.
Don't own shares? The company is growing fast enough that investors can afford to be a little less picky, especially if you have time to let the business catch up to the stock. Dollar-cost averaging could be a nice compromise; buying shares a little at a time can help you avoid getting stuck if the share price drops. In that scenario, you can thank the market for the discounts on this hyper-growth compounder.
