Has the Celsius stock reached its nadir since July 2022, potentially signifying a sufficient drop?
On January 23rd, shares of buzz-worthy beverage company, Celsius Holdings (CELH), dipped to an intraday low of $24.55 - a price not seen since July 2022.
The energy drink sensation markets its products with help from heavyweight partner, PepsiCo (PEP). However, the growth hype has subsided, with the stock plummeting over 51% in 2024. Investors are grappling with determining Celsius' worth amidst the slowdown.
Let's examine where Celsius stands presently and potential paths forward.
A scorching revival
With Pepsi's backing, Celsius has soared in recent years, boosting sales, becoming profit-positive, and expanding its portfolio to no less than four product categories and numerous flavors.
Following its Q3 earnings release, management reported a 11.6% US market share in the energy drink category, making Celsius the undeniable third player, second only to Red Bull and Monster Beverage. Although market share slightly reduced from its May peak, Celsius remains confident in its offerings and anticipates amplified expansion in 2025.
The risks of riding the roller coaster of growth stocks
Celsius offers a prime example of the extravagant valuations investors are willing to assign to unstoppable growth stocks. With no apparent sign of a slowdown, buyers bid up stock prices, believing the good times would never wane. Yet, even a slight dip in revenue and margins sparks a brutal sell-off.
For Celsius, 2025 represents its make-or-break year. It must rebuild investor confidence and demonstrate sustainable growth amidst shifting consumer patterns.
Reassuringly, Celsius is far from an isolated case. PepsiCo, too, is experiencing voluminous declines across its beverage brands, including Pepsi and its Frito-Lay and Quaker Oats lines.
Packaged food giants like Kraft Heinz, Campbell's, and Conagra Brands have seen growth grind to a halt as consumers embrace value-driven shopping habits. Even Coca-Cola has reported a decline in its recent quarterly unit case volume.
In a nutshell, the broader packaged food and beverage industry is grappling with challenges, which investors should keep in mind when evaluating Celsius.
A reduced-price Celsius
Today, Celsius boasts a forward P/E ratio of 27.3 and a P/S ratio of 3.9, based on consensus analyst predictions for strong growth in the next 12 months. However, these expectations are significantly lower than the lofty visions of just a couple of years prior.
With its reduced value, investors should weigh potential risks and obstacles before jumping on the bargain bandwagon. The primary question is market share: does Celsius still possess the ability to exponentially grow as it did when it was less established? Or, having gained ground, can it hold onto its audience and extend its presence in the market?
Despite challenges, Celsius has demonstrated excitement for its offerings. Expanding internationally might offer a viable growth path for the company, enabling it to elevate earnings even with tepid domestic market share enhancements.
Now that Celsius' cost has dropped, it may no longer necessitate groundbreaking growth; rather, it must solidify its market position and strategize toward moderate growth.
Investors' dilemma: buy or pass on Celsius
If you're bullish on the long-term potential of the energy drink market and envision Celsius maintaining its prominent spot and even expanding its market share, this could be an opportune time to pile on Celsius shares.
However, there's also the possibility of Celsius failing to regain substantial growth in 2025, leading investors to further scrutinize its valuation.
Undeniably, Celsius remains a speculative stock, but its significantly decreased cost offers a more attractive risk-versus-reward balance.
In light of the stock's plummeting performance and investors' doubts about Celsius' growth potential, some might choose to rethink their investment strategies in the finance sector, particularly when considering companies with high valuations.
Given Celsius' reduced forward P/E ratio and P/S ratio, some investors might see this as an opportunity to enter the market, expecting the company to solidify its position and strategize towards moderate growth in the coming years.
