The tricky part about buying growth stocks is that they rarely seem to "go on sale." The best growth stocks don't often suffer sizable temporary pullbacks. They have a tendency to remain fully valued, and fully priced. That's why it pays to act quickly when you see the rare exception to this norm.
That's why you should consider using the recent stumble by energy drinks outfit Celsius (CELH 2.12%) as a stock buying opportunity. Its story -- and its opportunity -- are just too compelling to ignore.
Of course, this stock tip comes with a significant caveat.
Celsius is being (re)built for growth
Don't sweat it if you're not familiar with this beverage maker. Celsius isn't exactly a household name. At first glance, it appears to be just another brand of energy drink -- one of many taking aim at a market dominated by Red Bull and Monster Beverage.
There's something curiously different about this relative newcomer, however. Although the energy beverage brand mostly struggled since launching in 2004, things changed when current CEO John Fieldly took the helm in 2018. Namely, the company finally reached its full potential. During its most recent five-year stretch, annual sales grew from around $50 million to this year's expectation of $1.25 billion.
Data source: StockAnalysis.com. Chart by author.
Much of this growth is rooted in what makes its products different.
See, Celsius drinks have no artificial preservatives, no artificial flavors, no aspartame, and no high fructose corn syrup. They're also very low in sodium -- a somewhat rare claim within the energy beverage arena. In an environment where consumers are increasingly interested in avoiding anything artificial, its drinks are a hit. Even some dieticians are begrudgingly acknowledging that Celsius' take on energy drinks offers clear benefits and less risk compared to alternative offerings.
Maybe even more of this company's growth is rooted in what makes Celsius Holdings' marketing different. Rather than limiting its aim to the 20-something males who typically gravitate to such products, Celsius boasts a healthy number of customers who are not only in their 40s, but who are also women. Arguably just as important are the promotional partnerships Celsius is now scoring. It's the official energy drink of Major League Soccer. It's also officially partnered with five colleges' sports teams to help promote the brand.
Perhaps the most potent partnership working in Celsius' favor, though, is the one born out of the minority stake in Celsius that beverage giant PepsiCo (PEP -0.62%) acquired in August 2022. In exchange for its $550 million investment in the energy drinks outfit, PepsiCo also secured distribution rights to Celsius' products ... not that Celsius minded. After all, PepsiCo is one of the biggest beverage distributors in the world. It can open doors that Celsius couldn't open for itself.
The bullish case sounds even better when the stock is down
Celsius' story is incredibly compelling. So why is the stock price down 16% from its September high?
Chalk it up to Celsius' relatively small size, its newness, and a general lack of familiarity with the company. These factors collectively set the stage for lots of volatility -- bearish and bullish.
As of the latest look, Celsius sports a market capitalization of only $13.1 billion. That's not tiny by any stretch of the imagination, but it is small enough for the stock to be readily pushed around by the ebb and flow of the sentiment surrounding it. Moreover, because the brand isn't a household name, there's no frame of reference to help investors understand what it's worth. This ticker is highly subject to swings in both directions, with a limited number of interested investors on either side of the table.
This is one of those cases where investors might want to take a step back and look at the bigger picture. What they'll see is an energy drinks market that's ripe for disruption by a newcomer, with stalwart brands like the aforementioned Red Bull and Monster now increasingly seen as yesteryear's antiquated offerings. A strong, underestimated player like Celsius could readily swipe market share while Red Bull and Monster are making a point of primarily competing with one another ... and ignoring smaller competitors.
Up for grabs is a bigger piece of the energy drinks market that market research firm Straits Research believes will grow at an annualized pace of 8.5% between last year and 2030.
The kicker: Celsius Holdings may be fairly small, but this year's swing back to a profit precedes what the analyst community thinks will be a huge profit explosion.
If you can handle the volatility, risk-tolerant growth investors would be wise to use Celsius stock's recent sell-off as a buying opportunity. These dips have been pretty quick to reverse course since 2020.
