Celsius Stock Forecast: Key Insights for Investors

Celsius Holdings, Inc., renowned for its health and fitness-oriented energy drinks, has been attracting investor attention due to its robust growth and innovative products. However, the energy drink maker's stock has seen a decline over the past month. While recent announcements suggest that Celsius's hypergrowth phase might be slowing, this month-long dip could present a lucrative buying opportunity for patient investors.

Celsius Stock Performance: A Month in Review

Shares of Celsius (CELH) have declined more than 30% over the past month, with a significant portion of that drop occurring on May 28 after the latest Nielsen retail data suggested the energy drink maker might be losing momentum. Although Celsius' U.S. sales rose 39% year over year in the week ending May 18, this represented a sequential slowdown from the previous week. Additionally, its U.S. market share decreased slightly from 10.8% to 10.5%. Morgan Stanley's Dana Mohsenian cautioned investors about potential challenges ahead, noting that Celsius could face tough year-over-year comparisons after lapping the start of its U.S. distribution deal with PepsiCo (PEP) in August 2022.

During an investor conference on June 11, Celsius' management revealed that PepsiCo would reduce inventories of the energy drink by another $20 million to $30 million in the second quarter, following a $45 million reduction in the first quarter. While these reductions are not unusual for the second year of a domestic distribution deal, they slightly exceeded analysts' expectations and implied that supply was outweighing demand.

Celsius's Continued Rapid Growth and Current Situation

Celsius sells sugar-free energy drinks made from natural ingredients like green tea, ginger, and amino acids. The company claims its drinks have "thermogenic" properties that can accelerate metabolism and burn body fat during workouts. This health-oriented approach helped Celsius carve out its own niche, eventually making it the third-largest energy drink brand in the U.S., following Red Bull and Monster Beverage.

Celsius's rapid growth caught the attention of PepsiCo, which became a major investor and domestic distribution partner. Consequently, Celsius's revenue has more than doubled each of the past three years. The rapid expansion of its North American business, bolstered by PepsiCo's extensive retail reach, has offset the more variable growth of its smaller international segment.

Future Prospects for Celsius

Celsius aims to increase its market share in the U.S. and expand into more overseas markets. However, in the first quarter of 2024, its revenue rose only 37% year over year as it lapped PepsiCo's initial expansion of its distribution channels. The latest Nielsen data and PepsiCo's inventory reductions suggest that Celsius's days of triple-digit sales growth may be coming to an end. Analysts project its revenue to rise 29% in 2024 and expand at a compound annual growth rate (CAGR) of 31% from 2023 to 2026.

For comparison, Monster Beverage generated $1.3 billion in revenue in 2010 and grew at a CAGR of 20% over the following three years. Currently, Celsius remains on a stronger growth trajectory than Monster did when it had comparable annual revenue. Monster's revenue subsequently rose at a CAGR of 12% from 2013 to 2023.

Analysts expect Celsius's adjusted EBITDA to grow 32% in 2024 and to increase at a CAGR of 30% from 2023 to 2026. Based on these estimates and its enterprise value of $14.3 billion, Celsius trades at about 37 times this year's adjusted EBITDA. In contrast, Monster, which is growing at a much slower rate, trades at 21 times this year's adjusted EBITDA.

Should I Buy Celsius Stock Now?

Celsius's slowdown this year wasn't entirely unexpected, but it's still unclear whether the company is just up against tough year-over-year comparisons or if it's reaching saturation in its niche market. Despite the recent decline, the stock seems reasonably valued relative to its growth potential. However, it would be prudent to wait for the second-quarter report before making any long-term investment decisions in Celsius.

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