While everyone focuses intensely on the "Magnificent Seven" stocks, there's another business that has absolutely crushed it for investors: Celsius (CELH 1.30%).
This beverage stock has soared 5,860% in the past five years (as of April 5), perhaps making it the single best business to have owned during that time.
Long-time shareholders might be taking a victory lap, considering taking profits off the table. Prospective investors might be wondering if it's too late to buy the stock.
Appreciating the growth story
Celsius appears to be benefiting from heightened consumer interest in health and wellness. Its energy drinks are marketed as functional beverages that focus on natural ingredients and caffeine. Clearly, this has caught on in a huge way with customers.
Last year, Celsius generated revenue of $1.3 billion. That represented a 102% increase compared to the year-ago period. And it was a whopping 10x higher than just three years ago. These types of gains are coming from a beverage company, not an artificial intelligence enterprise. The sales gains are certainly the key factor catching shareholders' attention.
Celsius products can be found in numerous different retail settings, like in mass-market retailers, convenience stores, and in fitness studios. Getting broad distribution and meeting consumers where they are is key to growing revenue.
The company has found tremendous success online. According to the management team, Celsius was the top-selling energy drink brand on Amazon in 2023. That's an impressive feat. Amazon is an e-commerce juggernaut that can certainly propel any consumer brand to new heights, as it's likely the first place that consumers search for when shopping online. Plus, being able to utilize Amazon's extensive logistics footprint only helps get Celsius into more households.
Last August, Celsius entered into an agreement with PepsiCo that made the beverage and snacks giant a distribution partner both domestically and internationally. Pepsi did $92 billion in sales last year and has a presence in more than 200 countries and territories. Plugging Celsius into this massive distribution network can only help to grow sales over time. And it can give the energy drink business more revenue in overseas markets, a huge opportunity given that North America represented 96% of Celsius' sales last year.
Looking ahead, Wall Street expects growth to taper off from the recent triple-digit rates. Over the next three years, consensus analyst estimates call for revenue to rise at a compound annual rate of 35%. This is still an encouraging forecast.
Monster Beverage, the leader in the industry, generated $7.1 billion of sales in 2023. If investors believe Celsius can get to this level one day, there is a lot to be excited about.
Understanding the expectations
There's a lot to like about the trajectory Celsius has been on. I definitely understand why investors who have been on the sidelines would want to rush in and scoop up shares to ride the powerful momentum. After all, Celsius stock has continued its impressive run into 2024.
But investors need to understand expectations. After all, even the best businesses can make for terrible investments if the valuation is excessive. I believe Celsius fits this description.
As of this writing, the stock trades at a price-to-earnings ratio of 109. That's an extremely high valuation multiple that reflects the ridiculous amount of optimism and enthusiasm surrounding Celsius right now. I believe this valuation prices in a virtual certainty that the business can maintain its huge growth indefinitely. There's no margin for error.
This is typically not a proper situation in which to invest. The market has high hopes for the company. Should Celsius miss estimates, even slightly, when it reports financial results, the stock could take a massive hit.
Yes, shares could keep climbing higher in the near term. But that's impossible to predict. Just based on the stock's monumental rise and its current valuation, I do believe it's too late to get in on Celsius.
