Celsius companies (NASDAQ: CELH) is down 50% this year, down nearly 70% from all-time highs in May. The energy drink brand has been a growth doll since the 2020 pandemic. Even with this drop, Celsius shares are up over 2,000% since March 2020, meaning the stock is up about 20x in less than five years. 20x in five years makes Celsius one of the best performing stock markets in recent years. At the start of 2024, optimism for stocks was at a fever pitch.
Now this optimism has turned to pessimism, with Celsius’s revenues experiencing a significant slowdown and even falling year over year last quarter. This pessimism probably goes too far and presents investors with a buying opportunity. This is why growth stocks Celsius Holdings are expected to rebound in 2025.
By serving a sugar-free energy drink, Celsius catalyzed a change in consumer preferences across the industry. Historically, energy drinks included Red Bull and Monstrous energy were branded for extreme sports, construction workers and parties. Plenty of other people consumed energy drinks, but this was the story out there.
Celsius has countered this narrative by marketing its sugar-free energy drink brand to fitness influencers, athletes and women. This strategy worked wonderfully and helped expand the entire category and convert people to sugar-free drinks. Today, more than 50% of energy drinks in the United States are sugar-free, while Celsius generates more than $1 billion in annual revenue.
To get national distribution, Celsius signed a deal with PepsiCo in 2022. Pepsi is now Celsius’s national distributor, which will give the brand more shelf space to compete with Red Bull and more established names. At the start of the deal, Celsius sales grew more than 50% year-over-year, prompting Pepsi to order as much inventory as possible to ensure shelves were always stocked with Celsius. In 2024, Pepsi realized it had ordered too much Celsius inventory and began slowing ordering to balance supply and demand.
End-market demand from Celsius customers is still growing, but this slowdown in Pepsi orders is causing Celsius’ sales to experience a temporary acceleration. In North America, sales fell 33% year-on-year last quarter. This is the biggest reason for the collapse of Celsius stock prices, but it is only a temporary phenomenon. According to third party estimates, the market share in North America is still 12%.
The past decade of growth for Celsius has been driven by North America. The market share went from virtually 0% to over 10%, resulting in annual turnover now exceeding $1 billion. Energy drink sales are still expected to grow steadily in the domestic market, although no investor should expect explosive growth from this market anymore given the size of the company today.
International revenues are key to the next chapter of the Celsius growth story. Management has begun an expansion into Western Europe, Australia and New Zealand, which together have a similar population to the United States. International sales were just $18.6 million last quarter and are still a small part of the overall Celsius business. If the brand can catch fire using the playbook that worked in the United States, I think Celsius is on track to double or triple sales over the next five to 10 years. Add in Latin America, the Middle East and Asia and there is still a lot of potential for this upstart energy drink brand in the coming years.
Growth stocks do well when they show strong revenue growth. That’s what matters most for Celsius stock’s recovery in 2025, and I think it’s plausible given the revenue dynamics discussed above.
In the long term, earnings growth will increase the stock price. Today, Celsius trades at a price-to-earnings (P/E) ratio of around 40, which seems expensive but is one of the cheapest levels in years. The stock has a market capitalization of $6.9 billion at the time of writing. If sales can grow to $3 billion within a few years and the brand can approach Monster Beverage’s EBIT margin (earnings before interest and taxes) of 27%, Celsius will generate $810 million in annual pre-tax profit, which is likely to equal will account for up to approximately $700 million in after-tax profits.
That’s a price-to-earnings ratio of 10 compared to the stock’s current market capitalization. I believe a growth stock like Celsius deserves to trade at a higher earnings multiple than this, meaning the stock will perform well for investors who buy today as long as revenue and earnings start growing again.
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Brett Schafer has no position in any of the stocks mentioned. The Motley Fool holds positions in and recommends Celsius and Monster Beverage. The Motley Fool has a disclosure policy.
Prediction: 1 Growth Stock That Will Bounce Back Next Year was originally published by The Motley Fool
