What happened
Shares of energy drink company Celsius Holdings (CELH 2.12%) hit all-time highs in September, peaking above $200 for the first time. However, Celsius stock subsequently fell, finishing the month down 12.5%, according to data provided by S&P Global Market Intelligence.
Zooming out tells a more complete story. During August and September combined, Celsius stock rose by about 19%. That far outpaced the S&P 500's 6.6% drop during that two-month period.
Nothing negative happened with Celsius during September. But strong recent gains had catapulted it to all-time highs, and apparently, it was simply time to take a breather.
So what
The beverage company's recent growth has been nothing short of sensational. For the second quarter, the company reported year-over-year revenue growth of 112%. This led to Q2 net income of $51.5 million, which was nearly a six-fold increase from the prior-year quarter.
These financial results, delivered on Aug. 8, certainly fueled big gains for Celsius stock in August, and the momentum carried into early September. Many analysts were also adjusting their price targets higher in light of the Q2 results, adding fuel to the fire.
However, the strong gains for the stock did push the valuation of Celsius stock to its highest point in more than a year. Its price-to-sales ratio jumped to nearly 17 at one point in September, compared to its average sales ratio of around 12 during 2023.
CELH PS Ratio data by YCharts.
In other words, strong financial results in recent months have fueled excitement for Celsius from Wall Street and retail investors alike. But once the valuation got a little too high, the stock pulled back.
Now what
Revenue growth for Celsius cooled in late 2022 before reaccelerating to the low triple-digit percentage range in 2023. That coincided with the company's partnership with PepsiCo, which is reaching its one-year anniversary in October.
CELH Revenue (Quarterly YoY Growth) data by YCharts.
But growth isn't over yet for Celsius. During September, management presented at the Piper Sandler Growth Frontiers Conference. During the presentation, it was noted that the company's most recent sales data is still showing triple-digit growth.
Moreover, CFO Jarrod Langhans said that the PepsiCo distribution partnership has opened many doors for Celsius. But even though its distribution has already expanded, it still has other growth opportunities. Specifically, Langhans noted that its top competitors have 25 to 30 products in stock in their distribution channels, whereas Celsius only has about 15.
Therefore, Celsius can still grow in existing channels by winning more shelf space, which will logically happen if consumers demand the company's products.
In conclusion, Celsius has more revenue upside ahead that can continue to support its lofty valuation.
