Will Celsius Stock Ever Recover?

Celsius Holdings (NASDAQ:CELH) is the maker of a line of energy drinks that has skyrocketed in popularity in recent years.

Once virtually unknown, Celsius has used social media marketing and celebrity influencer deals to rapidly build its brand awareness.

Although the product itself has been quite successful, the stock’s performance hasn’t matched it. Shares of CELH were trading at almost $100 per share as recently as May but have crashed to just over $30 since then. Will Celsius share price rebound, or are shareholders in this energy drink brand in for a crash?

Growth Has Been Scintillating

One of the most impressive aspects of Celsius is its long-term revenue growth history. In 2019, the company generated just $74 million in revenues. For the 12 months ending in Q3, that number skyrocketed to $1.37 billion. Revenue growth rates for much of the last five years have been in the upper double-digit and even lower triple-digit range.

While Celsius has been wildly successful when it comes to growing its revenues, the company did experience a fairly disastrous setback in growth in Q3. Revenues fell 31% year-over-year to $265.7 million.

North American revenue fell 33%, highlighting the company’s softness in its core market. Even with the Q3 results, though, it’s worth acknowledging that year-to-date revenues are up about 5% over the most recent 9 months.

Unsurprisingly, the revenue decline in Q3 also had deeply negative impacts on the company’s profitability. Gross margin only contracted by 4.4%, but net income plummeted 92% to just $6.4 million. Diluted earnings per share fell to $0.00, even though they had been at $0.30 a year ago.

Q3’s results demonstrated one of the larger risks Celsius faces, namely its dependence on third-party distributors. As management noted in the Q3 earnings report, much of the decline in revenue and earnings was the result of efforts by the company’s largest distributor to optimize its supply chain. When you stack Celsius up next to Coke or Pepsi you can see just how perilous the situation is versus the capacity to self-distribute.

A final development from the quarterly report was the acquisition of a contract beverage manufacturer that will massively increase Celsius’ manufacturing capabilities. With its new facility, Celsius can introduce new products more quickly and exercise greater control over its own supply chain while also leaving itself room to scale up in the future.

Where Does Celsius Go From Here?

Although recent Q3 results did nothing but disappoint shareholders, management has been on a mission to grow new sales channels and those efforts are starting to see the light of day. In Q3, sales to Costco and Amazon increased by 15% and 21%, respectively.

Celsius is also expected to regain profitability next year. The general belief is that the company will earn $1.06 per share next year but it can’t be overlooked that Q3 results were worse than analysts had initially expected. As such, it may be more reasonable to assume that Celsius would perform more in line with the low earnings estimate of about $0.88 per share in 2025.

What’s The Smart Money Saying?

If we run a discounted cash flow analysis, the price target is $36 per share, about 20% higher than where the share price sits, but below the consensus price forecast of Wall Street researchers.

If the stock reaches analysts’ price target, a gain of over 40% is on the cards, though only one of the 21 analysts covering CELH rates it as a Sell, suggesting that Wall Street’s general opinion on the stock is still bullish.

While shareholders and management alike has run into their fair share of challenges, the financials at least look bright in some areas. Total assets climbed from $1.54 billion at the end of last year to $1.70 billion as of the end of Q3.

Total liabilities also went up, but only from $447.9 million to $456.2 million and the good news is the company holds no long-term debt but does enjoy a reserve of cash and cash equivalents totaling a little over $900 million.

Will Celsius Stock Ever Recover?

If analysts forecasts are right, Celsius stock is likely to recover to $41.51 per share, the consensus fair value target of 18 researchers.

In many ways, Celsius Holdings is an attractive business. The company has done an exceptional job of marketing its product, and the revenue growth management has delivered over time is extremely impressive, to say the least. Paired with a decently strong balance sheet, plenty of room left for growth and depressed stock prices, there are quite a few things to like about Celsius.

Some jitters have arisen among value investors due to the 44x forward earnings multiple and 29x cash flow premium, albeit those multiples have been sliding.

While the worst of the effects of distributor supply chain changes are in the rearview mirror, the US energy drink market is seeing signs of softening as discretionary purchases diminish. It’s fair to say that changes in consumer behavior have put some downward pressure on US energy drink sales generally.

When you put all the ingredients into the mix, it’s hard to make a strong case for buying Celsius now though those holding it may decide it’s worth the reward-to-risk gambit to stay on the rollercoaster ride.

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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.