In the past few years, the investment world has been heavily influenced by the so-called "Magnificent Seven" enterprises. These industry-leading companies have rewarded investors in remarkable fashion, and they have driven up the returns of the broader market indices.
But there's one much smaller business whose performance has crushed the "Magnificent Seven." Had you invested $10,000 in this beverage stock 10 years ago, you'd be sitting on nearly $2.8 million right now. This translates to an outstanding gain of almost 28,000%.
Let's dive deeper into this company to better understand its monumental rise before figuring out whether the shares should be in your portfolio right now.
To the moon
The business that has produced that type of ridiculous return is Celsius (CELH 3.36%), which sells functional energy drink products. The stock's momentum has continued, as it's up 43% this year (as of April 15).
For shares to rise this much, it's not a surprise that growth has been the single most important factor. Celsius' story is no different. Last year, the company generated revenue of $1.3 billion. That was up from $53 million in 2018, a rise of 2,350%. You would struggle to find businesses that even come close to this type of expansion.
What's especially noteworthy is that Celsius couldn't be further from the "Magnificent Seven" businesses in terms of disruptive potential or innovation capabilities. But it has benefited from some powerful trends.
For starters, the energy drink industry is expanding at a solid clip. According to Grand View Research, the market's revenue is growing at more than 8% per year on a global basis. People have shown interest in these types of products, particularly the ones Celsius offers, because they focus on natural ingredients.
It also helps that people probably drink these beverages multiple times per week, probably as a substitute for regular coffee. This can drive repeat purchase behavior.
NASDAQ: CELH
Key Data Points
To its credit, Celsius' management team has taken the right steps to broaden the exposure of the brand. This was the top-selling energy drink on Amazon last year, a feat any consumer products business would want to achieve.
Celsius also has a partnership agreement in place with PepsiCo, which handles distribution, both domestically and internationally, for the energy drink enterprise. Celsius can lean on the beverage and snacks giant, plugging into its system, to reach more retail locations and customers. This bodes well for its ability to keep growing sales.
Wall Street is bullish, as analysts are expecting revenue to increase at a more than 34% annualized rate over the next three years. That marks a dramatic slowdown from prior years, but it would still result in a much larger sales base in the future.
On a larger scale, the global energy drink market generated an estimated $100 billion in revenue last year. Based on its 2023 sales, Celsius is still a tiny fish in a big pond, giving it plenty of room to grow.
The investing perspective
It's rational to assume that winning stocks will continue their positive streak in the future. And it's impossible to deny the powerful momentum Celsius is benefiting from.
However, I think it's best to set realistic expectations. The stock currently trades at a nosebleed valuation. Shares go for a price-to-earnings ratio of 101, indicating heightened investor exuberance. It doesn't matter how much a business is firing on all cylinders. Valuation always matters. If you overpay, forward returns are likely to disappoint.
Even though the stock keeps rising, I think it's very expensive right now. While I wouldn't bet against the company, I'm not a buyer today.
