During most of 2024 Celsius companies (NASDAQ: CELH) Shares are on a roll, reaching an all-time high of $96.11 in March. After a small dip in April, the stock rallied again before just falling nearly 40% last month from its 2024 high. Shareholders were tested in their beliefs during this rollercoaster ride.
There are reasons for stock price volatility, but the question investors should always ask when a stock drops dramatically in a short period of time is whether the severity of the selloff is justified. Let’s take a look at why Celsius remains a stock to buy even after this dip.
The rapid growth has slowed
One of the main reasons why Celsius’s share price has risen so much in recent years is the company’s eye-popping revenue growth results. Over the past five years, quarterly revenue growth has consistently exceeded 50%, often reaching triple digits. The company has also become sustainably profitable and has been generating increasing free cash flow in recent quarters.
Unfortunately, revenue growth in the most recently reported quarter (Q1 of FY 2024) was 37%. This was lower than Wall Street analysts expected, and the stock sold off, likely setting off the 40% decline in recent weeks.
Taken out of context, there’s nothing to worry about with 37% revenue growth. However, when a stock is trading near an all-time high, anything perceived as not meeting expectations could send the stock plummeting.
Expand internationally
The vast majority of Celsius’s turnover comes from North America. In the first quarter, the share from North America was 95%. Interestingly, while total sales fell to 37%, international sales increased by 43% and sales in Europe increased by 63% year on year. Celsius sees international markets as an opportunity for future expansion of the company.
The company recently started selling its products in the United Kingdom and Ireland and expects to expand further in those countries. Additionally, it expects to begin sales in Australia, New Zealand and France in the fourth quarter of this year.
The pace of this international growth is made possible by the distribution agreement that Celsius signed PepsiCo by the end of 2022. One of the benefits of this agreement was Pepsi’s ability to facilitate Celsius’ international expansion.
This deal is less than a year old, but the first international results are promising. Investors should keep an eye on this in the coming year as these growth efforts begin to accelerate following a late 2024 launch.
Celsius is not cheap, but it is cheaper
Even after the stock sell-off, Celsius is still an expensive stock. It currently trades at 11 times trailing revenue (P/S) and 70 times trailing earnings (P/E). That said, both metrics have been significantly higher over the past year.
Celsius is also expensive compared to its closest competitor Monstrous drink, with a price-to-earnings ratio of 7 and a price-to-earnings ratio of 30. However, Monster has much slower growth rates. In the first quarter, the company saw year-over-year revenue growth of just 12%.
While Celsius is not cheap, its valuation has been historically close in recent years. For investors who believe the company will continue to see strong growth, buying shares today could be a bargain.
That said, a further slowdown in the coming quarters would likely send shares lower. Calculating the dollar cost for this stock may make sense for most investors.
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Jeff Santoro has positions in Celsius. The Motley Fool holds positions in and recommends Celsius and Monster Beverage. The Motley Fool has a disclosure policy.
1 Growth Stock Down 34% to Buy Right Now was originally published by The Motley Fool
