A lot of growth stocks rebounded to all-time highs in April. That wasn't the case for Celsius Holdings (CELH +1.01%). The energy drink maker is flat in the past month and still off 65% from all-time highs set in 2024 due to slowing growth, inventory volatility, and investor uncertainty over its acquisition of competitor Alani Nu.
Not even the best winning stocks go up in a straight line. Drawdowns are inevitable, and can present buying opportunities for smart investors with their gaze on long-term returns. Can buying the dip on Celsius Holdings stock today set you up for life? Let's dive into the numbers and try to figure it out.
NASDAQ: CELH
Key Data Points
Teaming up with Alani Nu
On April 1, Celsius completed its previously announced acquisition of Alani Nu, a deal set to shake up the energy drink market. Celsius was the initial energy drink brand to disrupt the legacy players with its sugar-free drinks focused on catering to more women and health-conscious consumers. But in the last few years, a lot of copycat brands emerged, which has slowed Celsius' growth at retail outlets. Celsius' market share in energy drinks has stagnated at just over 10% in the last six quarters.
Alani Nu is growing faster than Celsius at the moment, posting 50% revenue growth on $595 million in annual sales as of the latest update compared to 22% retail sales growth for Celsius. It is profitable and the fastest market share gainer in the energy drink space. On the one hand, this looks like a promising business that can help accelerate Celsius' revenue growth. On the other hand, Celsius has been losing customers to Alani Nu and is now acquiring the company for a net price of approximately $1.65 billion. That's money Celsius would not have to spend if it had a strong enough brand to fend off Alani Nu's competition.
Combined, Celsius and Alani Nu could soon have 20% of the energy drink market in the United States and will be the fastest-growing player in the space. The brands can now work together instead of fighting for customers, giving them scale to hopefully crowd out other upstart sugar-free beverages and make inroads against leaders such as Red Bull.
Image source: Getty Images.
Steadily growing end market around the globe
One thing the newly formed Celsius has going for it is a growing demand for energy drinks. Instead of soda, juice, or coffee, people -- especially younger folks -- are turning to energy drinks. The energy drink market is expected to grow at a 7% annual rate through 2030, with even faster growth for sugar-free beverages. This is a big tailwind that can help boost the sales of Celsius and Alani Nu.
Internationally, there is a ton of whitespace for both these brands to grow. International makes up a small percentage of Celsius sales today but is growing quickly, with 39% revenue growth year over year last quarter. It has expanded to new markets such as France and Australia and could eventually go global like other energy drink brands. The category has not appeared country-specific for brands in the past, making the category similar to soda, as opposed to beer or alcohol which is much more fragmented.
The international market is much bigger than the United States, where Celsius and Alani Nu already generate close to $2 billion in revenue (or at least will in 2025). If the brands can succeed globally, there is an opportunity for revenue to grow to $5 billion and maybe even $10 billion someday. It can add even more fuel to the fire for revenue growth over the next decade.
CELH Operating Margin (TTM) data by YCharts.
Can Celsius stock help set you up for life?
Celsius and Alani Nu have a ton of growth potential over the next decade. Today, they have a combined revenue of around $2 billion, but I think the company can grow to around $5 billion in annual sales within five years, especially if the international market keeps growing quickly.
If we assume an operating margin of 25% -- which is slightly below that of Monster Beverage -- the expected $5 billion in sales equates to $1.25 billion in annual operating earnings. The stock has an enterprise value of around $10 billion when including the Alani Nu acquisition and proposed dilution and debt added to the balance sheet. Dividing that $10 billion by the $1.25 billion estimate results in a multiple below 10.
What this means is that Celsius stock should be much higher in five years if it can reach $5 billion in revenue. After its large drawdown, the stock looks cheap for those who believe in the long-term growth story of Celsius and Alani Nu.
Keep in mind that consumer brands can have weak competitive advantages because of changing consumer preferences. If customers wake up someday and decide to not want as many energy drinks, demand for Celsius products could go down. Or people may just switch to other brands. While this is a risk to watch out for, it's likely a small one for Celsius and its proven track record of market share gains.
Buy Celsius stock today and there's good reason to believe you shares will move higher over the next decade, creating wealth for your portfolio.
