Energy drink company Celsius Holdings (CELH 5.75%) was the belle of the stock market ball in recent years. From the start of 2019 through the end of 2023, shares were up more than 4,600%, turning a $10,000 investment into more than $470,000. But in 2024, Celsius stock is down about 4%, and it's down 45% from this year's highs.
This isn't just a case of stock market volatility. On the contrary, investors are digesting multiple headline issues that paint a bearish picture for the outlook of Celsius' business.
For starters, investors are looking at sales data that shows slowing growth. Investors already know that growth for Celsius is slowing -- revenue in the first quarter of 2024 was only up 37% year over year, compared to 95% growth in the prior-year period. But investors and analysts who monitor sales trends for the industry believe growth is slowing even further, prompting some analyst to lower price targets for Celsius stock.
NASDAQ: CELH
Key Data Points
There are also health-related concerns with Celsius making the rounds on social media. Many investors are starting to believe that there are health risks with energy drinks. They also think that people are becoming more aware of the risks and have consequently cut the products from their shopping routines.
Many readers are likely too young to remember what was happening with the stock market in 2012. But some of us (ahem, me) are old enough to remember a very similar situation with Monster Beverage (MNST +13.43%). Here's what happened back then and how it could apply to Celsius' shareholders today.
When Monster stock crashed hard
In the decade leading up to 2012, Monster stock was one of the greatest investments of all time. I'm not exaggerating. If you had invested $10,000 in Monster stock at the start of 2002, you would have had $1.76 million at the start of 2012. In short, growth was extraordinary and investors were rewarded.
But 2012 brought something different for Monster's shareholders. The headlines were chock-full of stories regarding the danger of sugar. As an example, New York City's then-mayor Michael Bloomberg proposed portion controls on sugary drinks that year -- it was a big deal.
The headlines also bombarded investors with stories about the dangers of energy drinks, not unlike today with Celsius.
Don't misunderstand: Sales for Monster did slow to a crawl as a result of these things. Many investors thought that this stock's magnificent run was over. As they moved on from their positions in Monster, shares fell 48% from its 2012 highs.
The 2012 low for Monster stock came during the last week of October, and it was a great time to buy, even though bearish sentiment was reaching a fever pitch. Since then, Monster stock is up more than 600%, compared with just a 300% return for the S&P 500.
What does this have to do with Celsius?
Returns for Monster stock in 2012 and returns for Celsius stock in 2024 illustrate an important investing truth: Over short time periods, feelings can influence returns. As the news cycle turned bearish on both companies, both stocks fell.
However, with Monster, the news cycle couldn't keep the stock down because the business results lifted it back up. Over the last 10 years, the company's revenue has tripled, and earnings per share (EPS) have nearly quadrupled. It's hard to keep a stock down when that's the case.
For Celsius, the questions investors should ask are whether it's poised for more growth and whether it can do it profitably. If it can, then investors may have completely forgotten what they were worried about in 2024 by the time 2034 rolls around.
One thing that Celsius has in its favor is a strong relationship with PepsiCo, one of the largest consumer-packaged goods companies in the world. Pepsi doesn't just help with distribution --it also has an equity stake. It's good to have a powerful ally in a competitive space.
Another thing in Celsius' favor for the long term is its relatively small size. It's grown by leaps and bounds in recent years. But with annual revenues only recently crossing $1 billion, it still has plenty of upside potential. For perspective, Monster generates over $7 billion in annual revenue.
The good thing here is that Celsius has focused on growth over optimal profitability. But now that growth has slowed, it can make some operational improvements to maximize higher profits. Therefore, there's a chance for higher revenues and profits.
I'm not saying that there aren't any concerns ahead for Celsius. Investors will want to monitor sales and the public perception of its products. But more often than not, investors overreact in the short term, which creates great opportunities for those with a long-term mindset.
