Over the last five years, shares of energy drink company Celsius Holdings (CELH 4.18%) are up almost 4,200%, turning a $10,000 investment into over $420,000. Regretfully, I'll admit that I dismissed this investment opportunity when it first crossed my radar.
I dismissed it because I was already familiar with Celsius stock from more than a decade ago. Back then, it was a penny stock with huge losses, and its products consistently failed to gain traction with consumers. I figured these things were still true of Celsius five years ago, and speculators were pumping the stock up unsustainably.
Had I taken two seconds to look, I would have realized that Celsius's business had undergone a radical transformation. Its distribution had increased exponentially, and its brand awareness was consequently soaring. Everything has continued on a positive trajectory in recent years. Now, it has over $1.1 billion in trailing 12-month revenue, and it's in better financial shape than it's ever been.
NASDAQ: CELH
Key Data Points
I can't turn back time and buy Celsius stock at 2019 prices. The only thing any investor can do is assess the opportunity today. Looking at where the stock is right now and considering where the business could be in five years, Celsius stock has a surprisingly clear path to more market-beating upside.
How Celsius can continue to be a market-beating stock
Over the long term, profit growth tends to correlate very strongly with stock returns. Granted, it's rare to see consistent profit growth without corresponding revenue growth. Therefore, growth on both the top and bottom lines is important. Fortunately for shareholders, Celsius can still do both over the next five years.
Here's a quick look at each in turn.
Ongoing growth opportunities
More grocery stores and convenience stores stock Celsius's products than ever before, but food service remains a growth opportunity. Recently, the company rolled out in more than 3,000 Dunkin' Donuts locations. More food service chains could soon opt to do the same thing.
However, consider that Dunkin' currently only stocks one SKU from Celsius's lineup. This is another growth opportunity. The company has dozens of flavors to choose from, and Celsius's distribution channels can increase how many products they carry. Dunkin' is one example, and convenience store chain 7-Eleven is another: It also just started stocking four additional products to go with the ones it already had.
International expansion is another long runway for Celsius, and it just announced an expansion into new markets in Canada, the United Kingdom, and Ireland. This is likely just the first such announcement of many to come. Consider that through the first three quarters of 2023, only 4% of its revenue came from outside of North America.
Profit margin improvement
Trailing-12-month revenue for Celsius is up close to 2,000% over the last five years. Growth has been so fast that sometimes, the company has sacrificed optimal profitability to simply get shelves stocked.
Celsius's gross profit margin and net profit margin have improved in recent quarters though. However, if you compare its profitability with top rival Monster, you can see that there's still more ground to gain.
Data by YCharts.
Celsius must keep growing revenue, but if its margins can improve at the same time, such a combination could fuel powerful momentum for the stock.
The valuation today
Celsius stock is currently trading at a price-to-sales (P/S) ratio of almost 11. Some investors may feel like that valuation is too expensive. However, this is a high-margin business which usually fetches a more expensive valuation.
The chart below shows that while the P/S ratio for Celsius stock might be on the high side, growth is still spectacular. The valuation is also well below its five-year average, making now an opportune time to invest.
Data by YCharts.
One grain of salt
I've never seen a company grow as fast as Celsius without having a hiccup or two along the way. And companies that grow this fast are often in danger of burning out as fad. Therefore, it's important to still consider what could go wrong with a Celsius investment -- it's not guaranteed to succeed in all the ways I've described here.
That said, the evidence points to Celsius being the real deal, and it's poised to be a market-beating investment over the next five years. The market might react negatively to a quarter here and there, but I expect the company will keep growing while boosting profits, leading to more upside for the stock.
