Energy drink company Celsius Holdings (CELH 2.12%) has been a winning investment for shareholders over almost any timeframe in the last decade. An investment of $1,000 10 years ago would be worth over $380,000 today. In comparison, that same investment made in the S&P 500 would be worth about $3,000 now.
This might seem surprising, but Celsius isn't the first company in this industry to see these returns. The best-performing S&P 500 stock of the past 30 years is Monster Beverage (NASDAQ: MNST), which sells its own line of energy drinks. There's no guarantee Celsius will follow in Monster's footsteps, but the recent results suggest it could be on a similar path.
As wonderfully as Celsius has performed, investing is all about looking forward. After this fantastic run, is Celsius still a buy, or have investors missed the boat on this massive winner? Let's take a closer look.
Impressive growth everywhere
The headline number that typically jumps out in Celsius' earnings reports is revenue growth. In the second quarter, Celsius posted year-over-year revenue growth of 112%. The bulk of this growth came from North America, but international results were also impressive. European revenue grew 64%, and Asia-Pacific revenue was up 82%. Celsius is clearly gaining traction all over the world.
As impressive as this growth has been, it shouldn't be a surprise to investors. Over the last five years, the average quarterly revenue growth for Celsius has been 91%, and it has never been below 20%. It's clear that Celsius products have caught consumers' attention, and a recent distribution deal should help even more customers discover its products.
Distribution is key
In Aug. 2022, Celsius entered into a distribution agreement with PepsiCo (PEP -0.62%) that has expanded Celsius's reach with existing retailers and introduced the brand to new spaces like gas stations and college campuses. In Q2 2023, revenue from this agreement with Pepsi represented approximately 57% of overall revenue, demonstrating the effect of the Pepsi distribution network only three quarters into the agreement.
Management pointed specifically to growth in food service through the deal, increasing exposure in places like colleges, hospitals, hotels, and casinos. This is expected to remain a growth driver moving forward. Celsius also sees Pepsi as an important part of its international expansion over the next three to five years, pointing to the 76% international sales growth as an early chapter of the company's international growth journey.
Valuation is a reason for caution
There's no denying Celsius's growth and future prospects. However, the market has also identified these trends and is pricing the stock accordingly. Celsius currently trades for 14 times sales and 117 times trailing cash from operations. Compare that to Monster Beverage, and it's clear that investors are paying a steep premium for Celsius.
Data by YCharts.
To be fair, Celsius arguably deserves its premium given the fact it's growing much more quickly than Monster. That said, at current prices, Celsius stock can ill afford a bad quarter. Any perceived weakness in the growth story is likely to result in a major hit to the share price.
Taking a small position today could work out in the long run, but investors may be better off keeping this stock on a watchlist until the valuation becomes a little more reasonable.
