Celsius Holdings (CELH 2.12%) has been one of the hottest stocks on the market over the past five years, with the company's growth engine having kicked into high gear.
Expanding beyond being a regional drink to a national one has been a massive growth driver, and now the company is making steady steps to keep the momentum going. This isn't a low-risk stock, but it may not be too late to invest in Celsius Holdings.
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The growth machine can't stop
Celsius has been on a growth tear, aided by a popular product and a distribution deal with PepsiCo (PEP -0.62%) signed in 2022. That move also coincided with the buyout of distribution deals with previous partners, which is where you see the following losses. But generally, this is a high-growth company that's maintained profitability along the way.
CELH Revenue (TTM) data by YCharts
Pepsi allows Celsius to grow quickly in North America, where the company generated 96% of its revenue last quarter. But it will also enable international growth, which is almost untapped right now.
Part of the reason Celsius can grow so quickly is that it's not a supply constrained business. Pepsi does the distribution, and copackers mix and bottle products. Celsius helps line up the supply chain, but it isn't building factories or buying trucks. This is mainly a drink design and branding company. That's an extremely asset-light model and allows profitable growth.
Precedent in energy drinks
It's difficult to look at Celsius' growth and valuation and not be concerned. Shares trade for 66 times next year's analyst estimates, and analysts expect 66% revenue growth over the next two years. That's a high bar for any company.
But there's precedent for this as being a profitable segment of the market. Monster Beverage (MNST 0.41%) has always been an expensive stock, yet it's wildly outperformed the market by continually growing revenue year after year.
MNST Revenue (TTM) data by YCharts
And I think Celsius' addressable market could be significantly bigger than Monster's, given the more accessible product and softer branding behind it.
Celsius' advantage in today's market
Celsius often falls into the energy-drink category, and that makes sense on the surface, given how Celsius originally positioned itself. But this is a more accessible product than Monster that appeals to a wider, more diverse audience. Celsius has very few calories, provides some vitamins, and has more flavor than flavored water. There's a need for a product like this between water and traditional soda.
That's why we see Celsius beginning to be more prominently displayed at big-box retailers, fast-casual restaurants, and even coffee shops. This isn't a niche product. It's a mass-market product that fits between sodas and fancy waters that have become popular over the past decade.
What's hard to gauge is what Celsius' opportunity is. I think Celsius could be bigger than Monster in time, and that would mean more than six-fold revenue growth. 2024 will be a step in that direction as the company gets better shelf space and starts to push international growth.
CELH Revenue (TTM) data by YCharts
It's not too late for Celsius
Operational momentum is important in consumer-facing brands, and that's a major tailwind for Celsius. As they see it more across the U.S., more consumers are trying it, and all indications are that they're adopting it into their drink routines rapidly.
I think this growth trend can last for at least the next decade as Celsius gets into more stores and pushes into more countries. If the company does become bigger than Monster, it would make the company's $14.9 billion market cap a steal today.
Watch growth rates closely in 2024 and beyond, but I think this is a winner that will keep winning for long-term investors.
