In the last five years, shares of Celsius Holdings (CELH -3.37%) are up 6,290%. That means for every $1,000 someone invested in Celsius five years ago, it is worth over $60,000 today. Not bad. The owner of the Celsius energy drink brand has grown its revenue like gangbusters as it gains market share in the highly profitable energy drink space and makes investors a fortune in the process.
But what will the next five years look like? The company has some big plans up its sleeve and just reported another strong earnings report, sending the stock close to all-time highs. Let's see where this monster grower could end up in five years and whether the stock is a buy at today's prices.
Slowing revenue growth, expanding margins
On its face, revenue growth looked a bit weak in the first quarter of 2024. It was just 37% year over year in the period compared to 102% in the fourth quarter of 2023. Sales hit $355.7 million -- a record -- but investors should be rightfully concerned about slowing sales growth as this business matures.
However, it looks like management had a decent explanation for the huge slowdown: inventory buildup among its retailers and distributors. In 2023, Celsius's distributors were building up inventory in anticipation of demand, which led to a pull-forward in revenue growth and those 100%+ numbers.
Now, the opposite is occurring, which is causing revenue growth to slow considerably. From a customer standpoint, retail sales of Celsius were estimated to have grown 72% year over year in the first quarter in the United States, which is closer to the true growth rate of the Celsius brand. It now has an 11.5% category share in its home market.
A maturing business means expanding profit margins. Celsius had a record 23.4% operating margin in the first quarter, which is a great sign for shareholders. It is closing in on competitor Monster Beverage, which had an operating margin of 28.5% in the same period.
Can the brand work internationally?
There is still room for Celsius to grow in the United States. With how fast it is gaining market share, it wouldn't surprise me if the company doubled or tripled revenue through market share gains and price hikes. This should help consolidated revenue grow for years to come, although you shouldn't expect 100% growth forever.
Eventually, the company will need to expand internationally if it hopes to keep growing revenue and match the size of the industry behemoth Monster Beverage. Monster does around $7.3 billion in annual revenue compared to Celsius's $1.4 billion. The brand has announced expansions into France, Australia, the United Kingdom, and New Zealand in recent months.
So far, this hasn't shown up on the income statement. International sales were just $16.2 million in the first quarter, or less than 5% of overall sales. Investors can't expect these markets to catch fire overnight, but there should be some concern that Celsius is unable to replicate the success it has had in the United States in other countries. International revenue will be an important number to track over the next few years as it will be the key to keeping up these high levels of revenue growth for the brand.
CELH Revenue (TTM) data by YCharts
Where will Celsius stock be in 5 years?
Celsius is closing in on $1.5 billion in annual sales. Let's assume it keeps growing market share in the United States, is able to implement price increases to keep up with inflation, and finally sees some modest success in new countries over the next five years. If this happens, I think Celsius could 3x its revenue to $4.5 billion five years from now.
Let's also assume profit margins expand to 25% and apply them to a $4.5 billion revenue base. That is $1.125 billion in annual earnings. Today, Celsius has a market capitalization of $22 billion, or a price-to-earnings ratio (P/E) of 20 based on this five-year earnings projection. Again, these are projected earnings five years into the future, not today's earnings. This P/E is barely lower than the average P/E for the stock market today.
What this tells me is that a lot of strong revenue growth is already priced into Celsius stock, even if you expect revenue to triple over the next five years. For this reason, I wouldn't be surprised to see Celsius shares at a similar level five years from now, making the stock a risky bet for investors at the moment.
Celsius is a fast-growing company. But that doesn't automatically mean the stock is a buy.
