Celsius Holdings (CELH 0.06%) is down 50% this year, and down close to 70% from all-time highs set in May. The energy drink brand has been a growth darling since the 2020 pandemic. Even with this drawdown, Celsius shares are up over 2,000% since March 2020, meaning shares are up around 20x in less than five years. 20x in five years makes Celsius one of the stock market's best performers of the last few years. In early 2024, optimism was at a fever pitch for the stock.
Now, this optimism has turned into pessimism, with Celsius' revenue going through a significant slowdown and actually falling year over year last quarter. This pessimism is likely going too far -- and presenting a buying opportunity to investors. Here's why growth stock Celsius Holdings is set to bounce back in 2025.
Complicated revenue dip
By serving a sugar-free energy drink, Celsius catalyzed a change in consumer preferences across the sector. Historically, energy drinks from the likes of Red Bull and Monster Energy were branded for extreme sports, construction workers, and partying. Plenty of other people consumed energy drinks, but this was the narrative out there.
Celsius countered this narrative by pushing its sugar-free energy drink brand to fitness influencers, athletes, and women. This strategy worked wonderfully, and helped expand the entire category and shift people to sugar-free beverages. Today, over 50% of United States energy drinks are sugar-free, while Celsius generates over $1 billion in annual revenue.
In order to get national distribution, Celsius signed a deal with PepsiCo in 2022. Pepsi is now Celsius' national distributor, which is getting the brand better shelf space to compete with Red Bull and more established names. At the start of the deal, Celsius was growing revenue at north of 50% year over year, which incentivized Pepsi to order as much inventory as possible to make sure shelves were always stocked with Celsius. In 2024, Pepsi realized that it had ordered too much Celsius inventory and started slowing its ordering to balance out supply and demand.
End market demand from Celsius customers is still growing, but this slowing of orders from Pepsi is causing Celsius' revenue to go through a temporary speed bump. Revenue fell 33% year over year in North America last quarter. This is the biggest reason for Celsius' stock collapse, but it is only a temporary phenomenon. Its market share in North America is still 12%, according to third-party estimates.
NASDAQ: CELH
Key Data Points
Betting on international adoption
The last decade of growth for Celsius has been driven by North America. It went from virtually 0% market share to over 10%, which is why annual revenue is now over $1 billion. Energy drink sales are still set to grow steadily in its home market, although no investor should expect explosive growth from this market anymore, given how big the business is today.
International revenue is the key to the next chapter of the Celsius growth story. Management has begun an expansion into Western Europe, Australia, and New Zealand, which combined have similar populations to the United States. International revenue was only $18.6 million last quarter and is still a tiny part of the overall Celsius business. If the brand can catch fire using the playbook that worked in the United States, I think that Celsius will be well on its way to doubling or tripling sales in the next five to 10 years. Add in Latin America, the Middle East, and Asia, and there is still a ton of potential for this upstart energy drink brand in the years to come.
CELH EBIT Margin (TTM) data by YCharts.
When growth recovers, the stock will follow
Growth stocks do well when they put up strong revenue growth. That's what's most important for Celsius stock to recover in 2025, and I think this is plausible given the revenue dynamics discussed above.
Over the long term, earnings growth will drive the share price higher. Today, Celsius trades at a price-to-earnings ratio (P/E) of around 40, which looks expensive but is one of its cheapest levels in years. The stock has a market cap of $6.9 billion as of this writing. If revenue can expand to $3 billion within a few years and the brand can close in on Monster Beverage's EBIT margin (earnings before interest and taxes) of 27%, then Celsius will be generating $810 million in annual earnings before taxes, which will likely equate to around $700 million in earnings after taxes.
That's a P/E of 10 compared to the stock's current market cap. I believe a growth stock such as Celsius deserves to trade at a higher earnings multiple than this, which means that the stock will perform well for investors who buy today as long as revenue and earnings start growing again.
