Celsius's Shares Suffer Significant Losses Currently, Yet Show Potential for 10-Fold Increase
Celsius's Shares Suffer Significant Losses Currently, Yet Show Potential for 10-Fold Increase
Celsius Holdings (CELH shedding -4.41%) saw a 70% decrease in value earlier this year. Its once sizzling revenue growth suddenly turned negative due to a significant pullback in orders by a major distributor, possibly PepsiCo.
However, a detailed examination suggests that this reduction in orders could be the distributor's attempt to adjust its inventory quantities. Furthermore, a potential 10x jump in the stock price might not be an excessive prediction, considering its discounted valuation and an untapped international market. Here's why:
Current scenario of Celsius
Celsius has thrived under the guidance of CEO John Fieldly.
Firstly, Celsius focuses on a wellness-centered marketing strategy, positioning itself as the "better-for-you, sugar-free substitute" to the energy drinks of old. Fieldly leveraged this unique selling proposition to build a following among fitness enthusiasts.
Secondly, Fieldly struck a deal in 2022 that significantly boosted sales. Celsius sealed a distribution deal with PepsiCo, leading to a massive increase in sales. As a result, Celsius has become the third most popular energy drink in the U.S., trailing only Red Bull and Monster Beverage.
Factors contributing to Celsius' stock price surge
While capturing market share from Red Bull and Monster alone may not result in a 10x stock surge, two crucial factors warrant consideration.
First, its valuation. While Celsius' P/E ratio of 39 has fluctuated in recent years, its P/S ratio stands at a modest 5. Historically, it has traded at an average of 15 times sales over the past five years, suggesting a 3x increase if it returns to its typical level.
Even if the triple-digit sales growth and higher sales multiples do not fully recover, investors should look to its untapped potential in international markets to drive a 10x increase in the stock. Fieldly has worked to expand Celsius' energy drinks availability in the Asia-Pacific region and Europe.
Financial data underscores the need for this expansion. From January to September 2024, sales of $1 billion grew by 5% annually, less than half the 104% growth during the same period in 2023's first three quarters. This includes a 31% year-over-year decline in Q3.
Despite North America accounting for less than 5% of the world's population, it generated 95% of Celsius' sales volume during the same period. Sales outside North America increased by 36%, demonstrating that the revenue growth slowdown did not affect markets beyond North America.
This also indicates that Celsius' international market potential remains largely untapped. Should the company successfully increase international sales to the point where North America is responsible for less than 50% of its total sales, the company's revenue, profits, and stock value (by extension) should both reap substantial rewards.
Invest in Celsius stock
Given the pullback in Celsius stock, investors may find this decline an attractive buying opportunity, potentially delivering returns of 10x or more.
Firstly, it seems investors may have overreacted, causing Celsius to plummet by 70%. It is likely that the distributor will gradually adjust its inventory levels, minimizing the likelihood of another significant reduction in orders.
Secondly, Celsius is barely scratching the surface of the world's 95% population outside North America. Should it successfully grow its popularity in Europe or Asia, the company and its stock could enjoy sustained growth for an extended period.
In light of Celsius' strategic focus on international expansion, investing in its stock could potentially yield significant returns, considering its untapped market potential in regions like Europe and Asia-Pacific. With the company's CEO, John Fieldly, working on widening its energy drink availability in these regions, a potential shift in sales distribution could lead to a 100% decrease in North America's dominance in Celsius' sales volume, potentially boosting its revenue, profits, and stock value.
Given Celsius' modest P/S ratio of 5, which historically averaged 15 times sales over the past five years, a return to its typical level could triple its stock price, even without fully recovering its triple-digit sales growth and higher sales multiples. This, coupled with the significant revenue growth in markets outside North America, suggests that investing in Celsius stock could be a worthwhile endeavor, considering its potential for 10x or more returns.