A Promising Rebound Ahead for Celsius Holdings
The past year has been challenging for Celsius Holdings (NASDAQ: CELH), with its stock plummeting over 70% from its previous highs. Despite recent setbacks, the energy drink maker’s long-term prospects remain strong. Let’s examine the factors behind the stock’s decline and why it could be poised for a significant rebound.
Growth Normalization and Convenience Store Struggles
Two primary factors have contributed to Celsius’ stock struggles. Firstly, the company’s growth normalized following its distribution deal with PepsiCo in 2022. The partnership significantly expanded Celsius’ presence in the convenience store channel, leading to remarkable but unsustainable revenue growth in 2023. As the company began to lap these distribution gains, growth inevitably slowed, catching many investors off guard.
Meanwhile, convenience stores themselves have faced challenges, with declining traffic and sales. Large operators like 7-Eleven have announced store closures, citing consumers’ increased prudence due to inflation, high interest rates, and job market concerns. As a result, the energy drink category has grown only 1% this year, compared to 8% growth in 2023.
Reasons for Optimism
Despite these challenges, there are several reasons to be hopeful about Celsius’ stock rebounding next year and achieving long-term success. Retailers and brands expect sales to improve in 2024, and the company’s inventory mismatch issues should resolve soon. Celsius remains extremely popular among younger consumers, who are likely to increase their spending as they age. According to a Piper Sandler survey, Celsius is the favorite energy drink among teens, with 35% naming it their top choice.
Non-Traditional Channels and Innovation
Celsius has also performed well in non-traditional channels, such as big box retailers and club stores like Costco Wholesale. The company continues to innovate with new flavors and products, including its Celsius Essentials lineup, which targets the larger 16-ounce energy drink category. This new lineup focuses on performance, aiming to attract more male consumers.
International Expansion Opportunities
One of Celsius’ biggest opportunities lies in international expansion. While only 7% of its sales come from outside the U.S., Monster Beverage generates around 38% of its energy drink sales from international markets. Celsius has established itself in Scandinavian markets and recently entered the U.K. and Ireland, with plans to expand into Australia, France, and New Zealand.
Valuation and Growth Potential
Celsius’ stock trades at a forward price-to-earnings (P/E) ratio of around 30 times next year’s estimates. This valuation is not expensive if the company continues to take share with younger consumers and capitalizes on its international opportunities. With a market cap of $6.4 billion compared to Monster’s $55 billion, Celsius could be a 10x winner in the future if it replicates Monster’s success in the beverage category.
Leave a Reply