There’s no doubt that it would take you a while to find a business that has performed as well for its investors as Celsius (NASDAQ: CELH) has. Shares of this energy drink specialist have skyrocketed 5,900% in the past five years, which would have turned a $1,000 initial investment into $60,000 today.
The stock is taking a bit of a breather; it currently sits 17% off its peak price. This might provide a lucrative entry point for prospective investors. But is it too late to buy Celsius stock?
Fantastic growth
Celsius has become a wild success story recently. It isn’t operating in the red-hot software or artificial intelligence industries, but selling what it calls functional energy drinks. By using natural ingredients mixed with caffeine, the company claims that its products have certain health benefits.
Consumers have shown tremendous interest in the company’s health-oriented energy drinks. Unsurprisingly, growth has been the key driving force behind the stock’s massive returns.
In the first quarter of 2019, Celsius raked in revenue of $14 million. Fast-forward to today, and the company reported Q1 2024 sales of $356 million. That’s a whopping 25-fold gain in just five years.
At a high level, the beverage industry is extremely mature, not registering much growth. But within this sector, energy drinks are expanding at a faster clip. This provides a favorable backdrop for Celsius.
Any consumer product benefits from broadening its distribution capabilities. Celsius can be found in many types of retail settings, like convenience stores, fitness centers, and online. By increasing its brand awareness and meeting consumers where they are, it’s not surprising that sales have taken off.
Celsius also benefits from a partnership with PepsiCo. The beverage and snacks giant not only took an equity stake in Celsius, but it handles distribution as well.
Companies that are growing this rapidly usually don’t prioritize strong financial fundamentals. The main goal is often to expand as quickly as possible, pouring resources into things like product development and marketing.
But here’s where Celsius bucks the trend. It generated $266 million in operating income in 2023, up from $158 million the year before. The company’s operating margin has exploded in the past decade, indicating a scalable business model. Investors hope that as sales continue marching higher, the bottom line will grow.
Monster Beverage, Celsius’ chief competitor in the industry, has averaged an operating margin of 31.5% in the past 10 years.
High expectations
There’s not a lot to dislike about this booming business. But from an investment perspective, we have to be more critical. The stock trades at a nosebleed price-to-sales ratio of 13.4 right now.
I’ve been saying for a while that Celsius shares look expensive. Based on the fact that the stock has soared 91% in the last 12 months, so far, many investors disagree.
However, I still stand by my view. Shares look very pricey today. And that’s especially true if you expect growth to slow down from its monster triple-digit percentage pace, which I think is very likely to happen. For what it’s worth, Wall Street consensus analyst estimates call for revenue to increase at a compound annual rate of 32% between 2023 and 2026, not anywhere close to its previous pace.
I’m always skeptical of buying shares that are priced as if the company’s outsize gains are going to continue indefinitely. That’s because expectations are just too high. If Celsius reports financial results that disappoint investors, the stock could tank. In other words, there’s zero margin of safety.
After its 60-fold rise in the past five years, I think it’s too late to buy Celsius stock.
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Neil Patel and his clients have no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Celsius and Monster Beverage. The Motley Fool has a disclosure policy.
Is It Too Late to Buy Celsius Stock Now? was originally published by The Motley Fool
From: Yahoo.com
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