Celsius Holdings (NASDAQ:CELH) shares have taken a big hit in recent months after Morgan Stanley (NYSE:MS), where the latter Nielsen data, suggested that the growth-oriented company had lost market share. This was compounded by additional data suggesting that further incremental gains in the energy drink market could be challenging. I am neutral on Celsius because, despite my liking of the brand, the stock looks a bit expensive to me.
Is there a market for Celsius?
Even though I’m actually the founder of my own health-focused soft drink company, it’s a million miles away from a company like Celsius. However, it will certainly be interesting to see how Celsius develops its niche and gains market share.
Celsius positions itself as a healthier alternative to traditional soft drinks, with drinks made with natural ingredients and caffeine from nature. To emphasize its commitment to a healthy lifestyle, the company produces drinks without added sugars, in line with current consumer trends.
In recent years, Celsius has responded to the growing demand for healthier beverage options. This appeals to people looking for a more natural and refreshing way to stay energized and hydrated.
There is a caveat, though. Celsius replaces the sugar with things like the artificial sweetener sucralose. For context, when I was making my health-focused soda — it’s called Sumacqua — I decided I wanted some of the sugar to come from natural sources, like grape juice — which is high in polyphenols — rather than artificial ingredients.
Nevertheless, many in the industry still see this as an improvement over traditional, high-sugar canned drinks like Coke, which are partially responsible for the widespread nature of diabetes. Celsius also claims to create metabolically positive drinks. These claims are only possible if you have the research to back them up.
In short, there appears to be plenty of room for growth. Celsius is operating in growing markets, with the health drinks market expected to grow from $344.36 billion in 2023 to $408.8 billion in 2028. It’s worth noting, however, that Celsius doesn’t fall into this category per se; it’s often referred to as an energy+ drink (an energy drink designed to boost metabolism and burn fat).
Data turn on Celsius
On May 15, Morgan Stanley reported that Celsius saw a small decline in market share from 10.8% to 10.5% based on Nielsen data. This in turn led to a rapid sell-off, and one that was reportedly justified. At 100x earnings and 20x sales, the stock was priced perfectly. For reference, private equity told me that if my company made $1 million in sales in a year, it would be valued at a price-to-sales (P/S) ratio of three to five.
Additionally, Truist analyst Bill Chappell has suggested that while few companies will reach more than 10% market share, incremental gains from here will be a challenge. Chappell noted that further growth will involve converting Monster’s loyal customers (NASDAQ:MNST) and Red Bull.
What do the forecasts say about Celsius?
Celsius is expected to post earnings per share (EPS) of $1.08 in 2024, which will then increase dramatically to $1.45 in 2025 and $1.99 in 2026. This is impressive growth for a company that is not in business in a rapidly evolving sector such as technology or biotechnology. . Looking beyond 2026, the number of analysts making forecasts drops to just one. The single analysts suggest Celsius’ earnings per share will rise to $4.84 by 2033.
So, what do these earnings forecasts mean for valuation metrics? Well, Celsius is currently trading at 51.69x non-GAAP forward earnings. This price-earnings ratio (P/E) then drops to 38.64x in 2025 and 28.07x in 2026. The TTM P/S ratio has fallen to 9.4x and the forward ratio stands at 7.9x.
According to the forecasts, earnings are expected to grow at a CAGR of about 28.8% over the next five years. Given its 51.69x non-GAAP forward P/E, Celsius seems a bit expensive. The price-earnings-growth ratio (PEG) is 1.8x.
Is Celsius Stock a Buy According to Analysts?
On TipRanks, CELH comes in as a Moderate Buy based on nine buy, four hold, and zero sell ratings assigned by analysts over the past three months. Celsius Holdings’ average price target is $80.33, implying 40.7% downside potential.
The Core of Celsius Stocks
I like the Celsius brand and think they are moving the industry in the right direction. There are very few companies that have successfully entered the soft drink market with a healthier alternative to the traditional brands that produce forms of soda and cola. However, I wonder, as Truist analyst Chappell noted, whether incremental gains will be harder to come by from here.
I also think the company is a bit on the expensive side, even given its strong earnings trajectory. This is highlighted by the 1.8x PEG ratio. Personally, I am already overinvested in the sector, given my attempts to start my own soft drink company. But if I wasn’t, I probably wouldn’t invest in Celsius. While it is a promising company, I am neutral on the stock.
Revelation
