1 Growth Stock Crushing Estimates

During the 2020-21 era, many stocks took off like rocket ships, but a host of them fell back to earth. When you look under the hood to see why, the financials provide a clear explanation.

The simple fact is growth rates slowed, and Wall Street, which had baked in more optimistic projections had to revise them lower on the back of poorer fundamentals.

Yet some companies not only grew rapidly during that era but continued to roar higher thereafter, posting ever more impressive numbers with each passing quarter. One of those breakout firms is Celsius Holdings (NASDAQ:CELH).

Proof Is In the Pudding

One of the reasons for all the excitement around Celsius Holdings is that the best performing stock over the past few decades is not Apple or Amazon or any other high flying technology stock that attracts a lot of attention but instead is Monster. 

Clearly, a successful drinks product that resonates with consumers can produce enormous shareholder value and those early to the Celsius Holdings story hoped to ride the wave higher.

They have a lot of reasons to be buoyant on the prospects of the firm. Revenues have been absolutely on fire. In the past four quarters alone, management reported YoY revenue growth rates of:

• Q4 2022: 70.7%
• Q1 2023: 94.9%
• Q2 2023: 111.6%
• Q3 2023: 104.4%

These came on the back of numerous triple-digit percentage growth rates in prior quarters too, so the company grew on top of an already strong foundation.

Better yet, the most recent quarter also reported earnings before interest and taxes of $97 million, a record high. Just 3 years ago, the sum of EBIT figures reported over the full year fell into red territory.

It’s no wonder that the share price is up 93% over the past twelve months, but the bullish run may not be over yet.

Celsius Holdings Stock Forecast

According to 15 analysts, Celsius Holdings stock has 12.6% upside potential to fair value of $69.16 per share.

Where debate begins about the merits of this forecast is in an analysis of the cash flows. A discounted cash flow forecast analysis places fair value closer to $54 per share, suggesting downside risk.

And there is no doubt that the earnings multiple is sky high at this point in time, sitting at 125x.

One way to think about the P/E multiple though is not as a fixed figure but an evolving one over time. Specifically, how will the earnings multiple change as earnings grow?

With $97 million of EBIT reported this past quarter, and a continuation of growth forecast, that multiple could be slashed soon. For example, two periods of 100% earnings growth would translate to a multiple closer to 30x, a reasonable ratio for such a high-growth stock.

It should be emphasized that analysts do expect net income to grow this year and some argue that the P/E ratio is low relative to near-term earnings growth. But some other multiples are more questionable.

Celsius Holdings Multiples Are Lofty

Across the board, Celsius Holdings multiples are elevated. While an argument can be made that earnings growth will tempter the elevated P/E multiple, revenue growth must rise to justify the P/S multiple, which now sits at 12.5x.

The company’s high valuation compared to revenues and EBITDA is noteworthy, and will likely cause value investors to look elsewhere. 

Indeed the share price volatility is sufficient to cause more risk-averse investors to search elsewhere too.

But the company’s growth and cash flows are reflective of a real business resonating with customers. Or as Buffett might say, they are clearly delighting their customers who are going back again and again to repurchase the product.

All that growth has been a boon for the balance sheet that now sits with $760 million of cash, up from just $43.2 million in Q4 2020.

That cash pile didn’t grow by taking on a lot of debt. By contrast, Celsius Holdings has no long-term debt on its balance sheet whatsoever.

Now with $1.1 billion in revenues reported over the past twelve months coupled with a sturdy balance sheet, it seems that the future is even brighter because that treasure chest can be used to spur more growth.

The Bottom Line

Celsius Holdings has been a rare enterprise that has sustained rapid growth rates over the past twelve quarters, continues to build on its cash reserves, and delight customers with its products.

The financials would suggest at this time that the multiples are lofty but rapid growth rates can justify some of the key multiples. For example, even with a P/E multiple of 125x, the firm’s PEG is 0.75x, suggesting the company could actually be undervalued relative to near-term earnings growth.

Analysts certainly seem to agree, and rate the stock a buy with double-digit percentage upside potential at this time even though CELH share price is up by almost 2x over the past year alone.

Now with cash reserves approaching $1 billion and still enjoying no debt burden, Celsius Holdings certainly appears to have the resources needed to sustain further rapid growth.

One often overlooked aspect of a successful company is its ability to grow internationally after conquering domestic borders. It’s quite possible that Celsius Holdings growth story remains in its early innings if the company can branch out abroad and find successes internationally too.

For now, the Celsius Holdings share price story has a long way to go to mirror the enormous returns produced by Monster over the past few decades, but it’s trending in the same direction and wouldn’t be a stock to bet against any time soon as far as the financials are concerned.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.