Staggering Shares of Monster Growth Company Observing a 70% Decline, Potential Purchase Opportunity
2024 has been a successful year for high-growth stocks, with the Nasdaq-100 Index up 23.4% year to date. Many stocks have seen gains of over 100%, but this trend hasn't been followed by popular investor choice Celsius Holdings (CELH 0.16%). The energy drink brand is down 70% from its highs this year, after experiencing a significant drop in sales.
Celsius gained over 10% market share in the energy drink category in the U.S. over the past decade. Consequently, the stock soared over 40,000% in that timeframe, making it one of the top-performing stocks of the past decade. However, its market cap has now decreased to $6.6 billion, causing concerns among investors about potential short-term losses. This decline in stock price might provide smart investors with excellent buying opportunities for historically strong growth stocks.
Here's why now could be an ideal time to purchase the dip on Celsius stock.
A Healthier Future for Energy Drinks
Over the last decade, Celsius disrupted the energy drink market by focusing on sugar-free drinks and incorporating vitamins. Their beverages are marketed as a healthier alternative, setting them apart from traditional energy drink competitors with a negative brand image. Celsius has targeted gym enthusiasts, women, and younger people, consistently growing its market share in the energy drink category and expanding the overall category. It now competes not only with brands like Red Bull but also with coffee, soda, and fruit juices.
Since 2018, the company has reported annual revenue of $1.37 billion, up from less than $100 million. Management estimates a 11.8% market share in the U.S., taking market share from traditional players like Monster Beverage and Red Bull. Celsius is currently expanding its success in the U.S. to international markets, having entered Canada, the U.K., Australia, and France in the last year. International revenue grew 37% year over year last quarter to $18.6 million.
The Impact of the Pepsi Distribution Agreement
Despite impressive growth figures, concerns about Celsius stock have led to a 70% decline from its highs this year. This is due to worries about future revenue and distribution.
Celsius signed a distribution deal with PepsiCo in 2022, which will see the majority of U.S. sales and international options sold through Pepsi's distribution network. Initially, Pepsi ordered a large amount of Celsius inventory to match its growing market share. However, in recent quarters, Pepsi realized it had over-ordered Celsius inventory and is now adjusting its orders, causing Celsius' revenue to drop 33% year over year in the third quarter.
While this 33% revenue drop is significant, it does not indicate a loss of consumer favor. Celsius has maintained a consistent market share of over 10% in the energy drink category. Year-to-date retail sales through the first three quarters have even surpassed all of 2023's sales. Orders to major retailers like Costco and Amazon grew 15% and 21% respectively in the third quarter.
Is the Stock a Buy?
The 33% revenue drop for Celsius is concerning, and many investors have sold off the stock as a result. However, if you believe in the long-term potential of the Celsius brand, then a share price below $30 could be an appealing opportunity.
Celsius has seen impressive revenue growth of 1,720% over the past five years. While growth will likely slow over the next five years, there is still room for steady growth. Through steady market share gains past 10%, overall category growth, and pricing power, I believe it is feasible for Celsius' revenue to double over the next five years, reaching around $2.75 billion.
With a mature business, Celsius should be able to achieve 25% profit margins, equating to $690 million in annual earnings power in five years. Compared to its current market cap of $6.6 billion, Celsius would have a price-to-earnings (P/E) ratio of less than 10 in five years. I believe the stock will trade at a much higher P/E ratio in five years, making it an attractive buy-the-dip candidate as it prepares to return to double-digit revenue growth in 2025.
The current decline in Celsius' stock price might be a great investment opportunity for those seeking historically strong growth stocks in the finance world. With a focus on healthier energy drinks and a growing market share, Celsius has the potential to significantly increase its revenue and earnings in the coming years, making it an appealing buy-the-dip candidate for smart investors engaged in investing money.
