Shares of Celsius (CELH +3.97%) have declined more than 30% over the past month. A large portion of that decline occurred on May 28 after the latest Nielsen retail data suggested the energy drink maker might be losing its momentum.
Celsius' U.S. sales still rose 39% year over year in the week ending on May 18, but that marked a sequential slowdown from the previous week. Its U.S. market share dipped sequentially from 10.8% to 10.5%. Furthermore, Morgan Stanley's Dana Mohsenian warned investors that Celsius could face tough year-over-year comparisons after lapping the start of its U.S. distribution deal with PepsiCo (PEP 0.46%) in August 2022.
Image source: Getty Images.
During an investor conference on June 11, Celsius' management said that PepsiCo would reduce inventories of the energy drink by another $20 million-$30 million in the second quarter, which followed a $45 million reduction in the first quarter.
Those reductions weren't unusual for the second year of a domestic distribution deal, but they slightly exceeded analysts' expectations and implied supply was outweighing demand. Those announcements suggest that Celsius' hypergrowth days might be over, but has its month-long decline created a lucrative buying opportunity for patient investors?
NASDAQ: CELH
Key Data Points
Celsius is still growing rapidly
Celsius sells sugar-free energy drinks that are made from natural ingredients like green tea, ginger, and amino acids. It claims its drinks have "thermogenic" properties that can accelerate metabolism and burn body fat during workouts. That health-oriented approach helped Celsius carve out its own niche, and it eventually became the third-largest energy drink brand in the U.S. after Red Bull and Monster Beverage.
Celsius' rapid growth caught the attention of PepsiCo, which became its major investor and domestic distribution partner. As a result, Celsius' revenue more than doubled over each of the past three years. The rapid growth of its North American business, which benefited from PepsiCo's broader retail reach, offset the lumpier growth of its smaller international business.
|
Metric |
2020 |
2021 |
2022 |
2023 |
|---|---|---|---|---|
|
North American revenue (in millions) |
$95.5 |
$273 |
$617.5 |
$1,260.0 |
|
Growth (YOY) |
60% |
186% |
126% |
105% |
|
International revenue (in millions) |
$35.2 |
$41.2 |
$36.1 |
$54.7 |
|
Growth (YOY) |
131% |
17% |
(12%) |
52% |
|
Total revenue (in millions) |
$130.7 |
$314.3 |
$653.6 |
$1,320.0 |
|
Growth (YOY) |
74% |
140% |
108% |
102% |
Data source: Celsius Holdings. YOY = year over year.
As Celsius' revenue skyrocketed, its gross and adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) margins continued to expand as economies of scale kicked in.
|
Metric |
2020 |
2021 |
2022 |
2023 |
|---|---|---|---|---|
|
Gross margin |
46.6% |
40.8% |
41.4% |
48% |
|
Adjusted EBITDA margin |
12.2% |
10.7% |
10.9% |
22.4% |
Data source: Celsius Holdings. YOY = year over year.
Those numbers suggest that Celsius might become the next Monster Beverage, which still generates more than five times as much annual revenue as its smaller rival. Celsius' stock has soared about 4,340% over the past five years.
What's next for Celsius?
Celsius wants to increase its market share in the U.S. and expand into more overseas markets. But in the first quarter of 2024, its revenue only rose 37% year over year as it lapped PepsiCo's initial expansion of its distribution channels.
The latest Nielsen data and PepsiCo's inventory reductions suggest that Celsius' days of triple-digit sales growth are ending. Analysts expect its revenue to rise 29% in 2024 and expand at a compound annual growth rate (CAGR) of 31% from 2023 to 2026.
By comparison, Monster Beverage generated $1.3 billion in revenue in 2010, and it only grew at a CAGR of 20% over the following three years. So for now, Celsius remains on a stronger growth trajectory than Monster back when it was generating comparable annual revenue. Monster's revenue subsequently rose at a CAGR of 12% from 2013 to 2023.
Analysts expect Celsius' adjusted EBITDA to grow 32% in 2024, and to increase at a CAGR of 30% from 2023 to 2026. Based on those estimates and its enterprise value of $14.3 billion, Celsius trades at about 37 times this year's adjusted EBITDA. Monster, which is growing at a much slower rate, trades at 21 times this year's adjusted EBITDA.
Is it the right time to buy Celsius' stock?
Celsius' deceleration this year wasn't surprising, but it's too early to tell if it's merely facing tough year-over-year comparisons or if it's saturating its niche market. The stock seems reasonably valued relative to its growth potential after this recent decline, but I'd wait to see its second-quarter report before betting on Celsius' long-term recovery.
