Energy drink company Monster is one of the best-performing stocks of all time. Over its lifetime, the stock has turned a $10,000 investment into a staggering $6.7 million. Today, an up-and-coming energy drink company reminds me of Monster.
Celsius Holdings (CELH 3.30%) has proven to be a monster in its own right. While the comparison with Monster is egregiously obvious, it has merit. Celsius might be disrupting the energy drink sector and printing life-changing returns for long-term investors along the way.
Here are three reasons Celsius could be the ultimate growth stock you could buy with $1,000 today.
1. It is different and resonates with consumers
Celsius energy drinks wedged themselves into the market, focusing on young, active consumers. The company brands its products as fat-burning and advertises their lack of calories, sugars, high-fructose corn syrup, artificial colors, or aspartame. In other words, it's an energy drink for health-conscious consumers.
Clearly, that has resonated, especially after the pandemic. Celsius has exploded in popularity, marked by rampant sales growth. Revenue more than tripled since the start of 2022, including $1.3 billion in 2023 sales.
The company is now big enough that it realizes two primary benefits. First, its popularity helps command better shelf positioning at points of sale, where it's a battle with other energy drinks and indirect competitors (bottled waters, sodas, etc.) to claim the best shelf space. Second, the company has turned profitable. Analysts believe earnings per share will hit $1.09 this year, up from $0.77 last year.
PepsiCo's backing helps ensure execution
Celsius' popularity eventually caught the eye of PepsiCo, which struck a partnership with the company that included a minority investment. In the summer of 2022, PepsiCo invested $550 million in Celsius for convertible preferred stock. That means the shares are special (paying a 5% dividend) and can be converted to common stock if conditions are met. The deal financially incentivizes PepsiCo to help Celsius succeed.
The benefits of such a partnership cannot be stated enough. Have you ever seen the show Shark Tank? An up-and-coming business seeks mentorship and money from a billionaire investor -- and the investor, or "shark," often boasts of non-tangible contributions they can make, including knowledge and connections. That's exactly what PepsiCo became for Celsius. PepsiCo has helped Celsius dramatically expand its operations, especially in international markets, where it recently announced expansions into France, Canada, New Zealand, Ireland, and the United Kingdom.
The two companies recently added an amendment to their partnership that further sweetens the pot for PepsiCo to help Celsius grow, including provisions for promotional items. It's a sign that the partnership is going well, and investors are poised to continue reaping the benefits of the company's aggressive growth efforts.
The valuation leaves room for long-term returns
Rapidly growing companies don't come cheap, and this applies to Celsius stock. Today, shares trade at a pricey 69 times earnings, even if estimates call for long-term earnings growth averaging 31% annually. However, investors can get away with higher valuations when the companies are smaller. Today, Celsius is still worth a $17 billion market cap, which is big but not so big that the business has no chance of growing larger over time.
Sales momentum is strong; Celsius started 2024 with 37% year-over-year sales growth in Q1. Net income nearly doubled over last year, jumping 89% in Q1. Shares should burn off a premium valuation fairly quickly as profits grow far faster than expenses moving forward.
Plus, the conditions are getting ripe for the company to begin repurchasing shares, which will boost earnings per share and support a higher stock price. Consider that Celsius is a business with zero debt, a plush balance sheet with $880 million in cash, and just minted $123 million in free cash flow in 2023.
Celsius has all the makings of a future share cannibal, aggressively pumping its profits into buying shares to lower its share count. Admittedly, this is speculation on my part. However, long-term investors might be happy they bought and held shares before the day of such an announcement.
With that said, it's hard to see Celsius' momentum and strong ties to PepsiCo failing to make it a much larger company. The future is bright.
