Investment Opportunity: Significantly Reduced Growth Share Worth Considering Now
Under the leadership of CEO John Fieldy, energy drink company Celsius (CELH 2.92%) has seen its stock soar, reaching a peak of over 6,300% growth since Fieldy took the helm in 2018. However, a cooling period followed, with the stock losing 75% from its 2024 high due to reduced purchases from a key distributor. Despite this downturn, there are compelling reasons to view this as a buying opportunity in the beverage stock.
Celsius has carved out a niche for itself as the third-most popular energy drink in the US, boasting a nature-based approach, medical research backing its product, and health benefits that resonate with the fitness community. A distribution deal with PepsiCo in 2022 propelled Celsius's growth, resulting in increased revenue and retail shelf space.
However, a disruption in purchases from the distributor caused a significant slowdown in Celsius's revenue growth by the third quarter of 2024. The slowdown was further compounded by a decline in consumer spending on energy drinks, leading to reduced retail sales. As a result, net income dropped from $105 million in the third quarter of 2023 to just $8 million in 2024.
Despite these challenges, there are reasons to be optimistic about Celsius's future. Sales in the U.S. continue to grow, and the distributor is likely to adjust inventory levels, thereby eliminating the risk of another such slowdown. International sales are also on the rise, increasing by 37% year-on-year in the third quarter, although they currently account for only 7% of the company's revenue.
Moreover, Celsius's P/E ratio stands at 35, with a forward P/E ratio of 27, implying a potential recovery in profit levels. If the company can reinvigorate growth, the valuation is unlikely to remain this low for long.
Celsius presents some risk at current levels, but the significant drop in stock price could represent a buying opportunity for investors with a long-term perspective. Its continued expansion in international markets, coupled with its comparatively low valuation, makes it an intriguing prospect for those who believe in its long-term growth potential.
Enrichment Insights:
Celsius Holdings, Inc. has faced several challenges that have contributed to its recent stock drop, but there are also potential reasons to consider it a buying opportunity. Here are the key points:
Current Growth Prospects
- Market share capture: Despite slowed growth due to macroeconomic headwinds and inventory adjustments by key distributor PepsiCo, Celsius continues to capture market share in the health-focused energy drink segment.
- International expansion: The company has significant potential for growth in international markets, where it has recently entered new markets.
- Financial health: Celsius boasts a strong balance sheet with over $900 million in cash and zero long-term debt, positioning it well to compete against smaller brands both domestically and internationally.
Potential Reasons for a Buying Opportunity
- Timing issue with distributor: The company attributes the recent revenue drop to a timing issue with its main distributor, PepsiCo, rather than a decline in demand. Sales data suggests that Celsius is still taking market share in the space.
- Healthy business fundamentals: Despite the revenue drop, Celsius has still profited $164 million on a net-income basis year to date. This indicates that the business remains healthy and resilient.
- Competitive advantage: The company’s financial health and strong income statement provide a competitive advantage, especially when compared to smaller, upstart brands.
- Investor sentiment: The stock has dropped significantly from its all-time high, making it a potentially undervalued opportunity for investors who believe in the company’s long-term growth potential.
Analyst Views
- Speculative buy: Celsius is rated as a "speculative buy" for risk-tolerant investors, focusing on U.S. market share maintenance and international expansion.
- High conviction: Investors like The Motley Fool’s analyst team have high conviction in Celsius, believing that its business is still healthy and has significant growth potential, especially in international markets.
In summary, while Celsius has faced challenges, its strong financial position, continued market share capture, and potential for international growth make it a compelling buying opportunity for investors who are willing to take on some risk.
Investors looking to venture into the finance sector might find Celsius a promising investment opportunity, given its strong balance sheet and potential for growth in international markets. Despite facing challenges with one of its key distributors, the energy drink company has demonstrated resilience, maintaining market share and profiting significantly year to date.
Considering the significant drop in its stock price, individuals with a long-term investment perspective might view this as an opportunity to invest in a company with a competitive advantage and a strong income statement, particularly compared to smaller energy drink brands.
