It's been a difficult few months for Celsius Holdings (CELH -1.73%), which has seen its stock get cut in more than half since late May. The stock's struggles stem from the energy drink maker seeing growth slow down, now that it has lapped the benefits it got from a distribution deal with PepsiCo.
With its core products fully distributed within the U.S., the days of triple-digit revenue growth are now behind the company. However, its second-quarter results showed that Celsius still has solid growth prospects ahead of it.
International and Amazon sales lead the way
For the quarter, Celsius recorded revenue of $402 million, a 23% increase compared to a year ago. North American revenue jumped 23% to $382.4 million, while international revenue climbed 30% to $19.6 million. The consensus was for total sales of $391.1 million.
There have been worries about the declining growth that Celsius saw in Nielsen-tracked channels, but the company posted strong growth during the quarter in two non-tracked channels. Sales through Amazon soared 41% to $39.9 million, while sales in the club channel grew 30% to $88 million. It also noted that over 12% of its sales through PepsiCo were through the food service channel.
The company said it now had an 11% market share as it remained the No. 3 energy drink in the U.S. Its market share is up from 9.6% a year ago, but down from 11.5% last quarter. It also gained shelf space within existing stores, with its average SKU per store rising from 15 to 20.
The company also saw a good reception to its new Celsius Essentials line. All Commodities Volumes (ACV) for Essentials reached 64% in the quarter. ACV measures the distribution of a product weighted by the sales volumes of each store in a selected region.
However, on its earnings call, the company did highlight difficult consumer and competitive environments. Growth in the energy drink category has slowed, while one large convenience store recently reported a 4% decline in same-store sales.
Gross margins jumped 320 basis points to 52% and were up 80 basis points sequentially. Celsius benefited from lower raw material and freight costs.
Adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) rose 29% to $100.4 million. Earnings per share (EPS) rose 65% from $0.17 a year ago to $0.28. Analysts were looking for EPS of $0.23.
Turning to its balance sheet, the company ended the quarter with $903.2 million in cash and no debt.
Celsius didn't give any formal guidance, which is typical of the company. However, it did say that it expects to have gross margins in the high 40% to 50% range in the back half of the year and that sales and marketing expenses will likely be toward the high end of its 20% to 23% targeted range.
Image source: Getty Images.
Is it time to buy the beaten-down stock?
While the U.S. energy drink market has stalled a bit, Celsius' biggest opportunity is in international expansion. On that front, the company saw solid growth in Q2, but it is just scratching the surface of its International opportunity. It just began selling its energy drinks in the U.K. and Ireland in the second quarter, while it plans to launch in Australia, New Zealand, and France later this year. This is just the start of what could be a long runway of growth in front of it.
Within the U.S., meanwhile, despite the tough environment, the company is still doing well in more alternative channels such as Amazon, food service, and clubs, where it is putting up strong growth. It has shown that it can continue to gain shelf space within existing retail outlets, while its Essentials line has also gained distribution.
From a valuation standpoint, the company trades at a slight premium to rival Monster Beverage (MNST 0.64%). It has a forward price-to-earnings (P/E) ratio of 29 times, versus 25 times for Monster based on next year's analyst estimates. However, its revenue is growing at a much faster pace, and its price/earnings-to-growth (PEG) ratio is 1.25 times, versus 1.94 times for Monster.
CELH PE Ratio (Forward 1y) data by YCharts.
Given the large international opportunity in front of Celsius and its ability to still grow shelf space and gain share in the U.S., the stock looks pretty attractively priced right now. I would be a buyer at current levels while looking to add to positions on further dips.
