Shares of energy drink company Celsius Holdings (CELH 2.12%) dropped lower on Friday after a prominent analyst downgraded their outlook for the stock. As of 11:15 a.m. ET, Celsius stock was down 10%.
What is Wall Street thinking?
Bank of America analyst Jonathan Keypour downgraded Celsius stock today, according to StreetInsider. According to TipRanks, the analyst has a price target of $65 per share for Celsius, which still represents significant upside. However, Keypour had previously recommended buying Celsius stock, whereas now he's downgraded his recommendation to neutral.
Keypour is reportedly concerned about Celsius' sales growth going forward. And in all fairness, I believe it's reasonable to expect growth to slow for the company, relatively speaking.
Revenue for Celsius was up 140% and 108% in 2021 and 2022, respectively. And revenue through the first three quarters of 2023 is up 104% from the comparable period of 2022. Maintaining triple-digit growth indefinitely simply isn't realistic. So, to Keypour's point, there is uncertainty about the company's sales growth.
Is this an overreaction?
I'm unsure how much Celsius will grow its top line in 2024. That said, the company certainly has opportunities to increase the value of its business over the long term. It's still expanding in the U.S. and has barely tapped its potential in international markets.
Moreover, Celsius has been growing so fast that management hasn't had much time to optimize for profits. But that could change if sales growth slows.
Looking ahead to the next three to five years, I believe Celsius could become a more valuable company on its current trajectory. That's more in line with what investors should focus on rather than trying to project growth rates for the next 12 months, which is what Wall Street tends to do.
