I Just Bought the Dip in Celsius Stock (NASDAQ:CELH) — Here’s Why

Celsius stock (NASDAQ:CELH) has dipped considerably over the past couple of months. At $58.52/share, Celsius is down ~41% from its 52-week high of $99.62, reached as recently as late May. In this article, I will provide an overview of Celsius’ growth story, which has driven remarkable share price gains in recent years. Next, I will discuss the reason behind the sharp decline in the stock. Finally, I will discuss why I am bullish on the stock at its current price levels, prompting me to start a position following the dip.

Celsius’ Growth Story: A Remarkable Journey

To understand Celsius’ investment case, a brief overview of its growth journey is certainly required, as it has been nothing short of remarkable. Today, Celsius appears to be an established player in the energy drinks space, actively rivaling Monster (NASDAQ:MNST) and Red Bull. However, Celsius came from humble beginnings.

Early Years

Back in 2005, Celsius’ sales were a tiny $425.8K. By 2008, these figures had risen to $2.59 million, and by 2012, they had climbed to $7.68 million. At this stage, the company focused on positioning its drinks as fitness-oriented beverages that boost metabolism and burn calories, differentiating them from traditional sugary energy drinks. This unique selling proposition resonated well with health-conscious consumers and fitness aficionados, establishing a loyal customer base.

First Big Expansion Phase

Then, management’s growth strategy pivoted to aggressive marketing and influencer partnerships. By collaborating with fitness influencers and utilizing social media platforms smartly, Celsius tapped into the millennial and Gen Z demographics quite effectively. This momentum was evident around 2018 when sales reached $52.6 million—a respectable yet still humble figure.

This trajectory laid the foundation for an even more spectacular rise. The real turning point came in 2020 when sales more than doubled to $130.7 million. From there, Celsius’ growth story truly took flight. In the last four quarters leading up to Q1 2024, the company achieved an astounding $1.41 billion in sales. So what caused sales to increase more than 10x in just over three years? It was Celsius’ transformative deal with snacks and beverages behemoth PepsiCo (NASDAQ:PEP).

Deal with PepsiCo

In 2022, Celsius entered into a transformative distribution deal with PepsiCo. This partnership provided Celsius with access to PepsiCo’s vast distribution network, significantly expanding its market reach. The deal allowed Celsius to penetrate new retail channels and geographic regions more efficiently, bolstering its sales and brand presence.

PepsiCo’s extensive resources and expertise in distribution and marketing have also played a critical role in scaling Celsius operations. The collaboration has not only enhanced Celsius’ supply chain capabilities but also provided strategic support in areas such as product development and promotional activities that can help the company compete with the big boys in the space.

So Why Has CELH Stock Plunged Recently?

To address this question, it’s essential to recognize that significant drops in Celsius stock prices have been quite common. The stock’s current level wasn’t achieved through a steady rise. From its low of $0.06 in 2011, the stock has experienced declines of 50% or more on numerous occasions. With such explosive growth rates, accurately pricing the stock becomes extremely challenging, leading to the remarkable volatility seen over the years. However, the stock has also achieved stunning gains through this extreme volatility.

This time, the sell-off in shares appears to be driven by growing concerns about a potential slowdown in Celsius’ market share growth. Nielsen data indicates that Celsius’ market share peaked at around 10.7% in May. By June, it had dipped to 10.0%.

While this headline has significantly impacted the stock price, I believe such modest swings are normal as consumer preferences shift over time. Meanwhile, Celsius has only just begun its international expansion, with a soft launch in Canada. Therefore, it is reasonable to anticipate further market share gains as the brand grows beyond the United States.

Why I Bought CELH Stock

Following Celsius’ recent dip, the stock is now trading at approximately 52.8 times this year’s anticipated earnings per share (EPS). I find this to be a compelling valuation, especially given that EPS is expected to grow at a compound annual growth rate (CAGR) of over 30% in the coming years. For context, Monster Energy, which still experiences robust EPS growth albeit at a slower mid-teens rate, trades at 28 times earnings.

This suggests that Celsius’ stock may be undervalued relative to its future growth, implying significant upside potential. Still, it’s important to note that Celsius’ outlook does involve a degree of speculation.

Is Celsius Stock a Buy, According to Analysts?

Despite Celsius’ dip, Wall Street analysts remain relatively bullish. The stock features a Moderate Buy consensus rating based on nine Buys and four Holds assigned in the past three months. At $80.33, the average Celsius stock forecast implies 36.7% upside potential.

If you’re wondering which analyst you should follow if you want to buy and sell CELH stock, the most accurate analyst covering the stock (on a one-year timeframe) is Kevin Grundy of Exane BNP Paribas, with an average return of 70.71% per rating and an 83% success rate. Click on the image below to learn more.

The Takeaway

Celsius stock’s recent drop from its 52-week high likely reflects typical volatility for a company with such explosive growth. Despite concerns about lagging market share growth, Celsius’ all-around trajectory, partnership with PepsiCo, and untapped international market potential suggest that the stock is attractive at its current valuation levels. Either way, you should prepare for substantial volatility, with momentum investors, swing traders, and other types of speculators likely to be buying and selling the stock intensely in the coming months.

Disclosure