A Slumping Energy Drink Giant: Is Celsius Holdings a Buy or a Bust?
Celsius Holdings, the NASDAQ-listed energy drink company, has been a darling of growth investors for years. Its top and bottom lines have soared, generating life-changing returns for its investors. However, this year has been a nightmare for shareholders. The company’s growth rate has slowed, and its stock has plummeted over 35% year to date, putting it on track for its worst year since 2011.
A Decade of Exceptional Growth
Celsius has been one of the best growth stocks to own over the past decade, with annual returns consistently exceeding 20%. In 2020, the stock skyrocketed over 900%, making it a standout performer. However, this exceptional growth has led to inflated expectations, making it challenging for the stock to maintain its momentum.
Slowing Sales Growth and Distribution Concerns
The company’s sales growth rate has been slowing down this year, and its key distribution partner, PepsiCo, has reduced its inventory of Celsius products. This raises concerns about the growth rate in the coming quarters and the overall outlook. As a result, investors are no longer willing to pay premium multiples for the stock.
A Shift in Investor Sentiment
Today, the stock trades at over five times its trailing revenue, a significant adjustment from its previous valuation. While Celsius has reported revenue growth of 29% year over year, it’s a far cry from its previous top-line doubling. As a result, investors have adjusted the premium they’re willing to pay for the business.
Still Growing, Still Profitable
Despite the concerns, Celsius remains profitable and is trading at approximately 32 times next year’s profits. With its international expansion plans still in the early stages, the business has plenty of room to grow. If you’re willing to be patient, Celsius stock could be a great buy right now.
But Is It the Best Buy?
Before investing in Celsius, consider that it wasn’t among the top 10 stocks recommended by The Motley Fool’s Stock Advisor analyst team. These 10 stocks have the potential to produce monster returns in the coming years. With a proven track record of outperforming the S&P 500, Stock Advisor provides investors with a blueprint for success, including guidance on building a portfolio and regular updates from analysts.
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