Celsius companies (NASDAQ: CELH) has been a great growth stock to own over the past decade as both top and bottom lines have soared. But this year has been a nightmare for the energy drink company’s shareholders. The growth rate has slowed and given the worrying outlook for the future, the stock is in freefall.
Year to date, Celsius shares are now down more than 35%. The stock could be on track for its worst year since 2011. Is Celsius in big trouble, or could this be a good time to invest in the energy drink company?
Celsius shares have normally been a solid investment
Celsius has been one of the best growth stocks to own over the past decade as it has generated massive, life-changing returns for its investors. Here you will find an overview of the annual returns per year.
|
Year |
Celsius stock return |
|---|---|
|
2023 |
57.2% |
|
2022 |
39.5% |
|
2021 |
48.2% |
|
2020 |
941.6% |
|
2019 |
39.2% |
|
2018 |
-33.9% |
|
2017 |
114.3% |
|
2016 |
26.3% |
|
2015 |
288% |
|
2014 |
47.1% |
|
2013 |
68.7% |
|
2012 |
-4% |
|
2011 |
-50% |
Data source: YCharts.
Barring an ‘off’ year in 2018, the stock has generated pretty consistently solid annual returns of at least 20% per year over the past decade. This includes one exceptional year in 2020, when growth increased by more than 900%. The problem is that when a stock rises so much, expectations become too high, making it difficult for the stock to remain a hot buy among growth investors.
Why are Celsius shares doing so poorly this year?
Celsius’s business has achieved incredible growth over the years as it has established itself as one of the top energy drink companies in North America. But sales growth is slowing this year. The company’s main distribution partner, PepsiCohas also decided to reduce its stock of Celsius products. That’s a worrying sign that the pace of growth may slow further in the coming quarters, and the overall outlook may not be as encouraging either.
Investors have become accustomed to paying high multiples for Celsius shares in the past, but as growth prospects have become more worrying, there is less appetite to do so. Today, the stock trades at more than five times trailing sales. That’s a big adjustment compared to how highly investors previously valued the stock.
During the first half of this year, Celsius reported revenues totaling $757.7 million, up 29% year over year. That’s not a bad growth rate by any means, but in the past it wasn’t unusual for the company to double its revenue. Now that Celsius may no longer look like a growth machine, investors have adjusted the premium they are willing to pay for the company.
Are Celsius shares a good contrarian buy today?
Celsius has become profitable lately, and based on analyst expectations of future earnings, it trades at about 32 times next year’s earnings. That doesn’t seem like an unreasonable multiple to me for a company that’s still growing at about 30%. And with Celsius still in the early stages of its international expansion plans, the company has no shortage of growth opportunities.
Provided you’re willing to be patient with the company, Celsius shares could be a great buy right now as there’s still a lot of room to grow in the long term.
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David Jagielski has no position in the stocks mentioned. The Motley Fool holds positions in and recommends Celsius. The Motley Fool has a disclosure policy.
Celsius Holdings is on track for its worst year in more than a decade. Is this a huge buying opportunity for investors? was originally published by The Motley Fool
