The Nasdaq Composite has done well for investors in recent years. Since February 2019, the tech-heavy benchmark has returned 120%, including dividends. That's impressive.
But I think investors would struggle to find a business that has done better for shareholders than Celsius Holdings (CELH 2.12%). The beverage stock has skyrocketed more than 5,000% in the last five years, a monster gain.
Bullish investors are hoping that the momentum continues. In the same vein, can Celsius stock reach $100 by the end of 2024, translating to a return of 60% from the current share price?
Energizing growth
There's absolutely no question that the company is benefiting from tremendous growth. In the third quarter of 2023 (ended Sept. 30), Celsius reported sales of $385 million, which were 105% higher than the year-ago period and more than 10 times higher than Q3 2020. It's easy to get excited about this type of expansion.
This isn't a software company. No, Celsius sells energy drinks that mix essential vitamins and minerals with caffeine. By branding itself as a health-focused beverage choice, the business has experienced outsized success.
There are important developments that bode well for Celsius' future. The company inked a partnership deal with soft drink and snacks giant PepsiCo in August 2022. Pepsi took an equity stake in Celsius, and it became its distribution partner both domestically and internationally. This could seriously broaden Celsius' brand awareness, which can work wonders for a consumer-facing product.
Additionally, Celsius has found tremendous success selling on Amazon. This energy drink is now the most popular on the massive e-commerce marketplace, ahead of rivals Monster and Red Bull. Amazon had 4.5 billion visitors to its website in January, traffic that can drive greater sales for Celsius.
Wall Street analyst estimates call for revenue to rise 38% in 2024 compared to last year. Given this strong momentum, I don't think it's out of the realm of possibilities for the shares to reach $100 by the end of this year. Of course, this depends on the current price-to-sales ratio of 12.8 not dropping considerably.
Adopt a long-term mentality
Investors hoping to scoop up shares in order to generate huge short-term returns should think again, though. It's anyone's guess what will happen to a stock in the next six to 12 months. So, there's also a possibility of the shares falling between now and the end of this year.
This just means that investors who are looking at Celsius as a potential buying opportunity should only add the stock to their portfolios if they believe in the company's prospects over the long term. With this perspective, important questions should arise.
First and foremost, investors should be thinking about the durability of this business. Celsius' ascent is remarkable, but I am unsure if the company has developed an economic moat that comes from its brand recognition or from economies of scale. Time will tell. But this does add uncertainty to the equation.
Investors should also ask if Celsius will be able to increase its net income over the next few years. To its credit, the business posted a 21% operating margin through the first nine months of last year. With companies that grow quickly, it's typical not to see profitability. The hope is that this bottom-line performance can continue going forward.
And going back to valuation, a valid argument can be made that Celsius is an expensive stock right now despite its growth potential. This might turn some investors off. So while it's certainly tempting to buy shares as a momentum play, it's always best to think long term.
