Title: Grabbing Opportunities: A 70% Dipped Growth Stock to Consider
2024 hasn't been a walk in the park for Celsius Holdings (CELH -6.51%). Known for crafting sugar-free energy drinks, they reported a revenue dip recently, stirring up concern among investors. However, this setback might present an opportunity for patient investors seeking long-term gains. Here's why Celsius Holdings is still a worthwhile purchase heading into the holiday season.
Moving past market share stagnation and distribution hurdles
Celsius stock has plummeted for several reasons. Initially, the stock was overvalued with a P/E ratio exceeding 100 early in 2024. Energy drinks with sky-high valuations are inherently risky even with impressive sales growth.
Also, revenue growth stagnated in 2024, with each quarter showing a decrease in growth rate, peaking at a 31% decline compared to the same quarter previous year. Fret not! Contrary to appearances, Celsius's revenue didn't actually halve. The decrease can be traced back to PepsiCo, Celsius's significant distribution partner that decided to reduce its inventory levels for the energy drink company in 2024. This inventory adjustment resulted in a temporary hit to Celsius's revenue.
Though Celsius's share of the market hasn't changed drastically, it lost ground last quarter. Despite years of steady market share gains in the energy drink category, Celsius may have hit a plateau in the U.S., currently occupying around 12% market share in 2024. Hoping to regain momentum, the company will need to address rising competition from emerging brands.
International growth and category tailwinds
Celsius's winds are shifting in a positive direction as it ventures beyond established territories. This ambitious expansion plan now intends to conquer English-speaking countries and France. International revenue increased an impressive 37% year-over-year last quarter, demonstrating strong demand for the energy drink.
In general, the energy drink category continues to gain ground, especially when it comes to raiding market share from traditional beverages such as coffee, fruit juices, and soda. If Celsius can maintain its market share, this growing industry trend should provide a steady revenue boost.
Lastly, price hikes are a common occurrence in the consumer packaged goods (CPG) market. The current price for a 12-pack of Celsius cans on Amazon is just around $20. Over time, Celsius could opt for modest price increases, allowing the company to comfortably expand its margins, thereby bolstering revenue.
An appealing buy opportunity
By combining these growth drivers, Celsius could generate 10% annual revenue growth over a five-year period, resulting in $2.2 billion in sales. Assuming comparable profit margins to Monster Beverage, Celsius would generate $550 million in annual earnings it 2029, equating to a more budget-friendly P/E ratio of 12.4.
If you're convinced by Celsius's growth potential, the stock offers a worthwhile investment opportunity, especially for those who intend to hold onto their shares for at least five or more years following its 52% plunge.
In light of the revenue dip and temporary inventory adjustment from PepsiCo, some financially patient investors might see this as an investing opportunity, hoping for long-term gains as Celsius positions itself for international growth and rides the tailwinds of the expanding energy drink category.
With strategic market expansion into English-speaking countries and France, along with price adjustments that could boost margins, Celsius Holdings could potentially demonstrate a 10% annual revenue growth over the next five years, making it an appealing buy opportunity for investors with a long-term perspective.
