Energy drink company Celsius Holdings (CELH 2.12%) has stormed onto Wall Street. Shares are up more than 4,370% over the past five years. The company disrupted a competitive beverage industry and then linked up with PepsiCo on a distribution deal that took its growth to the next level.
However, the stock price is down nearly 25% from its high set in September. Investors are left wondering whether Celsius has gone flat, or if this is just a buy-the-dip opportunity before a new run higher.
Sometimes the line is thin between conviction and overconfidence. But Celsius is the real deal, and investors should consider scooping up this stock while it's on sale.
Here is what you need to know.
Celsius is chugging market share
Celsius became something of a sensation during the COVID-19 pandemic. The company advertised itself to active individuals, branding itself with the slogan "Live Fit." Celsius drinks also don't use some of the artificial/unhealthy ingredients found elsewhere, like aspartame and high-fructose corn syrup. It markets health-focused benefits on its can, such as boosting energy and aiding in fat burning.
You can see below that sales for the brand grew from just over $50 million in 2019 to $1.1 billion over the past year, an astounding 23-fold increase over just a few years. The rapid growth attracted PepsiCo, which invested in Celsius and integrated it into its massive distribution footprint in the summer of 2022.
CELH Revenue (TTM) data by YCharts
Such fast growth means that it's taking market share from competitors. Celsius cites Circana for market share data, estimating its market share in energy drinks grew to 10.5% in the United States as of Q3, up from 4.4% a year ago.
Celsius' market share might go even higher in the future. It sells online on Amazon, where it's 21% of the platform's energy drink sales. Its success on Amazon shows where overall market share may eventually go. Retail sales are growing faster than online, possibly because Celsius is still increasing its footprint in physical stores.
In other words, that 21% on Amazon, which reaches virtually every household in America, is what Celsius' share might be if it were in every store in the country. In that case, sales could still grow a long way moving forward. And remember, that's in the United States. There is an entire international opportunity ahead as well.
Earnings growth is charging up
Celsius' growth spurt over the past several years helped turn the business profitable. Below is the beginning of a hockey stick pattern, where a number is flat or growing slowly for a time, and then it exponentially takes off. The massive dip from mid-2022 to mid-2023 reflects one-time fees involved in the PepsiCo deal, so you can look past it.
CELH Normalized Diluted EPS (TTM) data by YCharts
What's important is looking ahead. The company's revenue is increasing faster than its expenses, pushing earnings far higher as it grows. Analysts believe Celsius will earn roughly $0.75 per share for the entire year, pricing the stock at a price-to-earnings ratio (P/E) of 66.
Revenue is growing at a triple-digit rate, up 104% year-over-year in Q3. That will slow down, but it's hard to see such solid operating momentum falling completely off. There's a good chance Celsius will continue growing sales at a high double-digit rate, which should translate into compounding profits (and investment returns).
Why buy Celsius today?
Suppose Celsius grows its earnings-per-share (EPS) by an average of 40% to 50% over the next four to five years thanks to ongoing revenue growth and improving profitability. The stock would be an excellent investment had you bought it today because it shouldn't take long to grow into and beyond its current valuation at 66x earnings.
High-flying growth stocks are often expensive because the market is pricing in future success. If the price gets too high, investors run the risk of the company underdelivering and getting punished when the stock reacts accordingly. There's no question that Celsius commands a hefty price tag. But thanks to its recent drop, it's not pricing in so much success that investors need perfection.
Welcome the price drop, and hold Celsius for the long term.
