Is there anything that energy drink company Celsius Holdings (CELH 2.12%) can do to maintain its superb revenue growth in 2024 and beyond? It might seem impossible at first, simply because its growth has been so spectacular in recent years and expecting it to continue would seem like folly. But the answer is a resounding "yes."
Let's recap how it got here: Celsius successfully differentiated itself in the popular and growing energy drink space. It has conducted studies to show that its drinks are thermogenic, meaning they burn calories even while you're resting. This gives the perception of Celsius being better for you.
Celsius was able to leverage its counter-positioning in the market to attract social influencers to market its products. From there, it was able to grow its distribution as more retail chains demanded the hot products.
In late 2022, PepsiCo took an equity stake in Celsius and became its distribution partner. It took some time to transition from its existing distribution system to Pepsi's, but once complete, this catalyzed Celsius' growth yet again. As its distribution increased, sales for Celsius soared. Check out the fabulous year-over-year revenue growth in the table below.
| Metric | 2019 | 2020 | 2021 | 2022 | First 3 Quarters of 2023 |
|---|---|---|---|---|---|
| Revenue Increase (YOY) | 43% | 74% | 140% | 108% | 104% |
Data source: Celsius Holdings.
Celsius has over $1.1 billion in trailing-12-month revenue, accomplishing what would have seemed impossible just five years ago. However, of this $1.1 billion, only 4% came from outside of North America. International markets remain an untapped opportunity. But the opportunity won't have to wait much longer.
Celsius' big announcement
On Jan 22, Celsius expanded into Canada, the United Kingdom, and Ireland. In a press release, CEO John Fieldly said, "We're pleased to grow CELSIUS in new markets and provide energy to more consumers."
Celsius' trusty partner, Pepsi, will help it grow in Canada. The company partnered with Suntory Beverage & Food Great Britain and Ireland for distribution in the other countries.
Investors can use Celsius competitor Monster Beverage to gain perspective on how important international expansion can be. Through the first three quarters of 2023, Monster generated net sales of roughly $2 billion outside of the U.S., which was 38% of its total net sales.
Not only are sales from international markets more than one-third of Monster's business, they have also been a good source of growth. In the same nine-month period of 2018 (five years ago), the company had net sales of only $819 million outside of the U.S.
In other words, Monster's international sales have increased 153% in only five years. That's amazing growth.
Celsius could actually follow a very similar growth trajectory given its growing brand awareness and its proven distribution partners. Therefore, while it's possible that growth in the U.S. could soon start to hit a ceiling, the company can still keep its revenue climbing by selling in untapped markets such as the U.K. and Canada.
Does international potential justify the price?
As a more mature company with much slower growth, looking at the price-to-sales (P/S) valuation of Monster stock can be helpful in determining a fair price for Celsius stock. As the chart below shows, Monster has traded at a fairly steady P/S ratio of about 9 for five years.
CELH PS Ratio data by YCharts
Celsius stock only trades a hair above Monster's valuation despite much higher growth. Moreover, Celsius' long-term growth potential is much higher, in my opinion. And its recently announced step outside of its core market of North America highlights this point.
Celsius' revenue growth could slow from its triple-digit pace. However, there's still plenty of upside as this popular brand picks up speed overseas, which is why this stock could still be a good buy today.
