There's no getting around the fact that Celsius(NASDAQ: CELH) stock has been tough to own for the past several weeks. Share prices are down a hefty 64% from May's peak -- and for good reason as sales growth is slowing. But that slowdown was to be expected given this up-and-comer's meteoric penetration of its market. And that's the crux of the buying opportunity created by the pullback.
While the mathematical top-line growth may be slowing, it's still impressive growth, and the Celsius story is still a compelling one. The stock's simply suffering some predictable (but temporary) growing pains. Here's why it's a buy right now.
Celsius was punished for flying too far, too fast
On the off chance you're reading this and aren't familiar, Celsius is an energy drinks company in the same vein as Monster Beverage or Red Bull. It's distinctly different from the industry's two dominant players, however. Whereas Red Bull and Monster have been around for years and have established roots within the extreme-sports and casual energy-craving crowd, (relatively) latecomer Celsius largely aims at the fitness-minded market. It promotes itself as "the better-for-you, zero-sugar alternative to traditional energy drinks."
This tack has proven successful since the company turned up the heat on its marketing efforts in early 2018 when current CEO John Fieldly took the helm. Since then, annual sales have soared from around $400 million to $1.5 billion, en route to more than $2 billion in 2026. Fieldly clearly has his finger on the pulse of the business; a distribution partnership with PepsiCo certainly seems to have helped as well.
Celsius stock, however, has been run through the same predictable ringer most stocks of young, high-potential companies are regularly pushed through: dizzying euphoria followed by a head-on collision with reality.
What gives?
As it turns out, although Celsius' products bring an exciting alternative to the energy drinks market, its (much) bigger competitors aren't simply going to roll over. Monster, for instance, recently doubled down on social media marketing; the decision seems to be paying off. Celsius' red-hot growth rates of the recent past are also just plain tough to maintain, falling from a year-earlier clip of 112% to year-over-year growth of 23% for the second quarter ending in June. Investors weren't quite sure how to process such a sudden and sweeping change. In fact, they panicked.
As is so often the case with such an emotionally charged scenario, the sellers overshot their target.
Celsius is gaining traction
Oh, don't misread the message. Even if it's oversold, stepping into Celsius' stock isn't for the faint of heart. The company is still finding its footing. Shares are still volatile as a result.
For speculators who can stomach the risk, however, Celsius is exactly where it should be at this point in time, having finally proven it's a contender.
Chief among the bullish clues is the fact that the company is now consistently profitable ... a corner turned in earnest early last year. It's increasingly profitable, too, and should continue to grow its bottom line at an even faster rate than its top line is improving.
Data source: StockAnalysis.com. Chart by author.
And this growth runway is longer than most investors might realize.
To date, the company has almost exclusively focused on the U.S. market. Now that it's getting real domestic traction (growing its U.S. grocery- and convenience-store market share from less than 5% a year ago to more than 10% now), it's setting its sights overseas. Celsius debuted in six countries other than the United States just this year. These include Canada and the U.K. Australia and France are next, with launches expected in both before the end of the year.
This expansion plugs the company into more of the global energy drink market, which is expected to grow at a strong, single-digit pace for the next several years as more consumers shun sugary sodas in favor of more functional beverages. This shift could be particularly pronounced within the United States, according to market research outfit GlobalData, which notes that Celsius already has a strong foothold by offering the market something unique within the functional drinks arena.
Then there are the "adjacent categories" of products Fieldly is considering, like food and bottled water. The company currently has no entry into these consumer-goods categories -- and may never. It's certainly an interesting growth prospect though, leveraging its differentiated brand name.
Celsius stock isn't for everyone, but...
Again, this ticker may not be a great fit for everyone's portfolio. While arguably undervalued, the company is also a work in progress. It's difficult to break into a market dominated by a well-established duopoly, even if Celsius is clearly winning at least some market share.
To the extent stories and trajectories and differentiation count, however, Celsius Holdings offers promise to risk-tolerant investors. The big pullback since May was largely driven by shock. Once more investors recognize the company is still making good forward progress, the underlying pessimism should return to reasoned optimism.
This might help: Despite several weeks' worth of steady selling, the analyst crowd keeping tabs on this stock isn't deterred. The vast majority of them still rate it as a strong buy, collectively sporting a consensus price target of $50.36. That's nearly 50% better than the stock's present price, which isn't a bad place to enter a new trade.
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James Brumley has 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.
