Celsius Holdings (NASDAQ:CELH) stock has taken a hammering in recent months after Morgan Stanley (NYSE:MS), quoting the latest Nielsen data, suggested that the growth-focused firm had lost market share. This has been compounded by additional data inferring that further incremental gains in the energy drinks market may be challenging. I’m neutral on Celsius because despite liking the brand, the stock looks a little expensive to me.
Is There a Market for Celsius?
While I’m actually a founder of my own health-focused soft drinks business, it’s a million miles away from a company like Celsius. However, it’s certainly interesting to see Celsius develop its niche and gain market share.
Celsius positions itself as a healthier alternative to traditional soft drinks, offering beverages made with natural ingredients and caffeine sourced from nature. Emphasizing its commitment to healthy living, the company produces drinks without added sugars, aligning with current consumer trends.
In recent years, Celsius has capitalized on the growing demand for healthier beverage options. This is appealing to those seeking a more natural and refreshing way to stay energized and hydrated.
However, there’s a caveat. Celsius replaces the sugar with things like the artificial sweetener sucralose. For context, when I made my health-focused soft drink — it’s called Sumacqua — I decided I’d rather have some sugar from natural sources like grape juice — which is high in polyphenols — rather than artificial ingredients.
Nonetheless, many people in the industry still see this as an improvement on traditional sugar-heavy canned drinks like cola, 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 it up.
In short, there appears to be great scope for growth. Celsius is operating in growing markets, with the healthy drinks market expected to grow from $344.36 billion in 2023 to $408.8 billion by 2028. However, it’s worth noting that Celsius doesn’t necessarily fall into this category; it is often referred to as an energy+ drink (an energy drink designed to boost metabolism and burn fat).
Data Turns on Celsius
On May 15, Morgan Stanley reported that Celsius saw a minor market share dip from 10.8% to 10.5% based on Nielsen data. In turn, this led to a swift sell-off and arguably one that was justified. At 100x earnings and 20x sales, the stock was priced for perfection. For context, I was told by private equity that if my business hit $1 million in sales in a year, it would be valued on a price-to-sales (P/S) ratio of three to five.
Moreover, Truist analyst Bill Chappell has suggested that while few companies make it above 10% market share, incremental gains from here on will be challenging. Chappell noted that further growth may necessitate converting loyal customers of Monster (NASDAQ:MNST) and Red Bull.
What Do the Forecasts Say About Celsius?
Celsius is expected to register earnings per share (EPS) of $1.08 in 2024, and that then rises dramatically to $1.45 in 2025 and $1.99 in 2026. This is impressive growth for a company that’s not operating in a fast-moving sector like technology or biotech. Looking beyond 2026, the number of analysts offering forecasts falls to just one. The singular analysts suggest that Celsius’s EPS will rise to $4.84 by 2033.
So, what do these earnings projections mean for valuation metrics? Well, Celsius is currently trading at 51.69x non-GAAP forward earnings. This price-to-earnings (P/E) ratio then falls to 38.64x in 2025 and 28.07x in 2026. The TTM P/S ratio has fallen to 9.4x, and the forward ratio sits at 7.9x.
According to the forecasts, earnings are expected to grow at a CAGR of around 28.8% over the next five years. Given the 51.69x non-GAAP forward P/E, Celsius does look a little expensive. The price-to-earnings-to-growth (PEG) ratio sits at 1.8x.
Is Celsius Stock a Buy, According to Analysts?
On TipRanks, CELH comes in as a Moderate Buy based on nine Buys, four Holds, and zero Sell ratings assigned by analysts in the past three months. The average Celsius Holdings stock price target is $80.33, implying a 40.7% downside potential.
The Bottom Line on Celsius Stock
I like Celsius’s brand, and I think they’re taking the industry in the right direction. Very few companies have successfully taken on the soft drinks market with a healthier alternative to the legacy brands producing forms of lemonade and cola. However, I do wonder, as noted by Truist analyst Chappell, whether incremental gains will be harder to come by from here on.
Equally, I believe the company is a little on the expensive side, even considering the strong earnings trajectory. This is highlighted by the PEG ratio of 1.8x. Personally, I’m already over-invested in the sector, given my attempts to start my own soft drinks company. But if I weren’t, I probably wouldn’t be investing in Celsius. While it’s a promising company, I’m neutral on the stock.
