June was cruel for Celsius Holdings (CELH 3.23%) investors. Shares of the functional energy drink specialist fell nearly 30% last month, and have plummeted 40% since third-party reports began detailing softening sales trends in late May.
Long-term shareholders are still faring well. Celsius stock is a 38-bagger over the last five years. Despite the June swoon, the shares are still trading marginally higher in 2024. However, sentiment has soured in recent weeks. At least seven analysts lowered their price targets last month, and one of them -- Mark Astrachan at Stifel -- whittled away his firm's price goal on the shares twice in June, just two weeks apart.
Celsius makes sparkling fruit-flavored beverages that help speed up a body's metabolism to burn calories and fat when paired up with cardiac or fitness activity. Has the functional beverage company finally gone flat? What must Celsius do to win back the market's bullish attention? Let's take a closer look at why Wall Street has turned on the one-time rock star, and what it can do to get investors back on its side.
NASDAQ: CELH
Key Data Points
A sparkling response
The first sign that business was slowing at Celsius came in early May, when it posted mixed financial results. After three years of triple-digit annual top-line growth, revenue gains slowed to a 37% increase for the first quarter of 2024. It was just shy of what analysts were targeting. The same growth stock that had routinely landed ahead of Wall Street expectations on both ends of the income statement proved mortal.
The news was better on the bottom line. Celsius continues to literally and figuratively profit from its scaling advantages and the shift to minority stakeholder PepsiCo (PEP 2.15%). Despite the sharply decelerating revenue jump, the beverage stock's profit of $0.27 per share was well ahead of the $0.19 per share in net income that the market was modeling. It's a surprise that really shouldn't come as much of a surprise; Celsius has posted double-digit percentage beats in earnings for five consecutive reports.
| Quarter | EPS Estimate | EPS Actual | Beat |
|---|---|---|---|
| Q1 2023 | $0.07 | $0.13 | 86% |
| Q2 2023 | $0.09 | $0.17 | 89% |
| Q3 2023 | $0.16 | $0.30 | 88% |
| Q4 2023 | $0.15 | $0.17 | 13% |
| Q1 2024 | $0.27 | $0.19 | 42% |
Data source: Yahoo! Finance. EPS = earnings per share.
The market had an odd reaction to the early May financial update. The stock opened slightly higher following the news, closing marginally lower by the end of the trading day. However, two weeks later the stock had soared 28%. The first quarter wasn't a deal breaker for investors or a back breaker for the stock itself. The real dagger came a couple of days after the post-earnings rally.
Image source: Getty Images.
Burning fat, calories, and investors
The initial third-party retail check came from Nielsen data, showing that Celsius sales growth for the week ending May 18 was just 39%. This is actually ahead of the 37% increase it posted in North American revenue through the first three months of this year, but the report noted that its share of the energy drink market declined from 10.8% to 10.5%.
This is when the same analysts that took the mixed quarterly report two weeks earlier in stride began to reassess the prospects of Celsius as a monster growth stock. Their own retail channel checks showed that expansion was slowing as the brand was maturing and the domestic distribution deal with PepsiCo was now facing more challenging year-over-year comparisons.
The deluge of slashed price targets and estimates played out through most of June, but there's hope as investors walk through the ruins in July. Analysts see revenue slowing again to 24% growth for the second quarter that ended over the weekend, but they see revenue clocking in with a 27% increase next year (following a 28% jump for all of 2024, including the 37% boost it already posted in the first quarter). Those same Wall Street pros see a profit of $1.09 per share this year and $1.42 per share in 2025. Those estimates are essentially where they were a month ago.
With international sales now starting to grow faster than business on its home turf, there is hope that Celsius can finally become a global brand. It will take time given overseas sales account for just 5% of the top-line mix. It's still a long-term catalyst for upside.
The valuation is also somewhat reasonable. Celsius is now trading at 40 times next year's projected earnings, a bargain if you think it can start to win back market share and continue posting double-digit beats on the bottom line. It's naturally not a good deal despite the historically cheap valuation if you think that its market share will continue to drop.
Looking back, it's easy to say that the bulls missed the warning signs. There were indications that market-share gains were under pressure dating back to last year's holiday quarter at the country's largest online retailer. The market's bubbly reaction to the mixed first-quarter results three months later seemed out of touch. However, we may now be at the other end of the sentiment spectrum. With Celsius now a month away from posting its second-quarter numbers, even a modest performance could come as a relief after the last five weeks of markdowns. You won't know if Celsius will go from flat to bubbly until you crack open the can.
