The market is racing higher, but some stocks are still on the sidelines. Stocks of Celsius holdings (NASDAQ: CELH) And Dave and Buster’s (NASDAQ: GAMBLING) are trading at a price below the record highs they reached earlier this year.
These are not perfect companies. Some of the declines are deserved. However, it seems that pessimism has trumped reality. I think both of these stocks could be bargains at current levels. Let’s take a closer look at these two stocks that could be attractive bargains for the next $1,000 you put into the market.
1. Celsius Holdings
This specialty beverage giant has gone from feast to famine pretty quickly, with shares down 67% from their record high in March. Celsius was growing so fast a year ago that it announced a 3-for-1 stock split in November. Now it has executed a 3-for-1 stock split without issuing any new shares.
Growth has hit the brakes for the company behind the functional fruit-flavored sparkling beverages that help activate thermogenesis to boost one’s metabolism. The same company that has more than doubled sales in each of the last three years has hit the brakes. Revenue growth slowed to 29% in the first half of this year, and now it’s slipping. Analysts are bracing for a 20% year-over-year decline in revenue for the quarter ending next week.
It’s an understandably scary scenario for an investment that was once one of the hottest stocks on the market. The latest drop came earlier this month during an analyst presentation, when Celsius revealed that orders from PepsiCo (NASDAQ: PEP) — a minority shareholder in Celsius and its primary distributor — would fall by as much as $120 million in the third quarter. Celsius did point out that retail scanner data shows product sales rose 10% this summer, but PepsiCo is reducing its inventory.
Can Celsius bounce back? Even PepsiCo noted a few months ago that thirsty consumers are turning to more traditional forms of hydration in this warmer-than-normal summer. Sales should rebound in the fall, but it is problematic that PepsiCo is still scaling back its Celsius orders.
Analysts have cut their top and bottom line targets, but they still expect revenue to rebound 13% in the fourth quarter and 17% in 2025. The out-of-favor beverage stock may not seem cheap at 32 times forward earnings, but a shift in momentum could push the bottom line higher and the earnings multiple lower. Keep an eye on international revenue, which is still not growing much but is growing faster than domestic revenue.
2. Dave & Busters
It’s all well and good until your stock price drops 54% from a spring high. The chain of supersized entertainment centers featuring arcade games, casual dining and event spaces has also seen a downturn in business, with revenue up just 1% over the past four quarters due to shrinking profit margins.
A 6 percent drop in same-unit sales last quarter is a downer, but Dave & Buster’s beat earnings expectations after two straight misses. As margins begin to recover, the next goal is to lure people back into the indoor oases of food, fun and festivity. The chain has revamped its menu and is in the process of remodeling its appearance to make it more appealing.
Wall Street pros see sales accelerating in the next fiscal year, with shares selling for less than 9 times next year’s expected earnings. The turnaround plan could fall apart, and Dave & Buster’s leveraged balance sheet limits the number of times the “continue” option can be exercised in this real-life arcade game.
But if lower rates can keep the economy going, it’s easy to see traffic picking up at your local Dave & Buster’s. This isn’t half the business it was in April. It’s on sale, and you can’t say that about many stocks these days.
Should You Invest $1,000 in Celsius Now?
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Rick Munarriz has positions in Celsius. The Motley Fool has positions in and recommends Celsius. The Motley Fool recommends Dave & Buster’s Entertainment. The Motley Fool has a disclosure policy.
Do You Have $1,000? 2 Stocks to Buy Now While They’re on Sale was originally published by The Motley Fool
