Celsius (CELH 1.76%) has prospered under the leadership of John Fieldy. Since he became CEO in April 2018, the energy drink company's stock has soared by more than 6,300% at its peak.
Nonetheless, the stock has lost 75% from its 2024 high amid lower purchases by a key distributor. While the purchasing slowdown may be temporary, it left investors questioning the stock's future growth prospects.
Still, instead of assuming Celsius's growth story is over, investors have good reason to see the pullback as a buying opportunity in the beverage stock. Here's why.
NASDAQ: CELH
Key Data Points
The state of Celsius
Celsius is currently the third-most popular energy drink in the U.S., lagging behind Red Bull and Monster. It stood out from competitors by taking a nature-based approach, emphasizing medical research on its product, and touting its health benefits. That angle helped it develop a following with the fitness community.
However, it was a distribution deal with PepsiCo that supercharged the stock beginning in 2022. This led to an investment from PepsiCo and a move that gave it valuable shelf space across numerous retail outlets. With that, revenue growth was up more than double in both 2022 and 2023.
Unfortunately, a purchasing disruption with a major distributor (most likely PepsiCo) led to the recent stock pullback. The distributor slowed its purchases, causing Celsius's red-hot revenue growth to reverse course by the third quarter of 2024 as sales growth at the retail level began to slow.
Fear and hope amid the slowdown
The severity of the slowdown is stark. In the third quarter of 2024, revenue totaled $266 million, down 31% from the year-ago period. As indicated, this stands in contrast to the 104% yearly revenue growth in the third quarter of 2023.
Indeed, the state of the market likely forced its distributor to adjust its purchasing levels. According to market research firm Circana, sales at the retail level increased by just 7% annually in the third quarter of 2024 over the last 13 weeks, an indication that consumers had cut spending on energy drinks. This stands in stark contrast to the year-ago quarter, when retail sales grew at 161% annually.
Moreover, since selling, general, and administrative expenses ramped up during Q3 2024, net income dropped to just $8 million versus $105 million in the third quarter of 2023.
Still, investors should put this situation into perspective. Sales in the U.S. continue to increase, and the distributor will likely right-size its inventory, making another such slowdown unlikely.
Also, the company's outlook may not appear as bleak as the sales slowdown might imply. International sales grew 37% yearly in the third quarter. Admittedly, only 7% of company revenue comes from outside North America. Nonetheless, if it can increase its distribution in Europe and Asia as it did in the U.S., it could bring back the rapid growth that took its stock higher in past years.
Additionally, its price-to-earnings (P/E) ratio is 35, and the fact that its forward P/E ratio is 27 implies a likely recovery in profit levels. If the company can reinvigorate growth, the valuation will likely not stay this low for long.
Consider Celsius stock
Following its 75% drop, the stock is probably offering investors a unique buying opportunity. Indeed, Celsius presents some risk at these levels. The slowing of product sales to single digits from the triple-digit increases from the year-ago quarter could discourage stock buying.
However, it continues to increase its proportion of international sales, and this part of the revenue stream continues to grow at a rapid clip. When considering Celsius' comparatively low valuation, today's price might be seen as an excellent buying opportunity in the future.
