Celsius Holdings, Inc. CELH, a high-profile player in the energy drink market known for its health-conscious branding, saw its stock dive to its 52-week low of $25.77 on Tuesday, closing the trading session at $26.96. This drop has raised questions for investors about the causes of the decline and whether now is the right time to buy, hold or sell CELH stock.
Shares of CELH have slumped 31.8% in the past three months, much wider than the industry's drop of 1.9% and the broader Zacks Consumer Staples sector’s decline of 2.3%. The company also trailed the S&P 500's growth of 10.6% during the same period. CELH is trading below its 50 and 200-day moving averages, indicating potential weakness in the stock's momentum.
CELH Price Performance vs. Industry, S&P 500 & Sector
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With a mix of factors — from operational challenges to competitive pressures — contributing to the stock’s downward movement, let’s delve deeper into what’s driving Celsius Holdings lower and whether there are signs of value at these levels.
What’s Behind CELH’s Significant Pullback?
One of the most significant contributors to CELH stock’s drop is the company’s recent financial performance. Celsius Holdings reported a steep 31% year-over-year revenue decline to $265.7 million in the third quarter of 2024 due to inventory optimization adjustments from its largest distributor, PepsiCo PEP. This inventory adjustment impacted the company’s revenues by roughly $124 million. Although management anticipates better inventory alignment in the fourth quarter, these adjustments signal potential volatility in the company’s supply chain, raising concerns about the consistency of future revenue streams.
Broader macroeconomic trends have been posing challenges for companies in the energy drinks market. Consumer fatigue with energy drinks, a shift toward more health-conscious products and reduced discretionary spending are putting pressure on the industry. Declining consumer traffic in some key channels has been weighing on demand for Celsius Holdings. A weaker consumer outlook can impact the company’s growth, particularly given its position as a premium brand in the energy drink sector.
Celsius Holdings also faces intensified competition from industry leaders such as Red Bull and Monster Beverage MNST, both of which have significantly invested in sugar-free and health-oriented products. This competitive landscape puts pressure on Celsius Holdings’ market share, particularly in convenience stores where foot traffic has declined. The need for aggressive promotional pricing to compete also weighs on the company’s margins.
Celsius Holdings faced margin pressure in the third quarter of 2024, wherein the gross margin contracted 440 basis points to 46%. The margin reduction was driven by the full ramp-up of an incentive program with PepsiCo, which is designed to bolster market share but has come at the expense of profitability. Sales and marketing expenses also remained high at 37.6% of revenues, underscoring the company’s substantial investment in brand-building. These spending requirements, coupled with competitive pressures, raise concerns over short-term profitability.
Celsius Holdings: What Do Analysts Forecast Next?
The Zacks Consensus Estimate for the current and next fiscal year earnings per share has moved downward over the past seven days. This downward adjustment reflects a negative sentiment among analysts and suggests potential challenges in achieving projected profitability.
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Find the latest EPS estimates and surprises on Zacks Earnings Calendar.
Is CELH Stock Still Overpriced?
Celsius Holdings' valuation continues to be a matter of debate. Despite the pullback in the stock price, CELH is trading at a premium relative to industry peers, which seems difficult to justify given the soft revenues and margin concerns. The company is currently trading at a forward 12-month P/E of 29.50, much higher than the industry’s 15.96. Celsius Holdings’ Value Score of D further reinforces these concerns.
Image Source: Zacks Investment Research
CELH's Strategic Moves: Paving the Way for Future Growth
Celsius Holdings is intensifying its strategic efforts to recover from recent setbacks. The company is making substantial investments in innovation, branding and marketing, with a keen emphasis on bolstering its competitive edge. By consistently launching new flavors and product variations, Celsius Holdings aims to align with evolving consumer tastes, positioning itself to regain momentum in an intensely competitive market.
A core strength of Celsius Holdings is its extensive presence across major retail channels. The company has secured shelf space in top retail chains, convenience stores and online platforms, broadening its market footprint. The company has strengthened its distribution network through diverse channels, including e-commerce and food service, which make up a substantial portion of its revenue base.
CELH’s sales to Amazon surged 21% to $27 million in the third quarter of 2024. Moving on, about 12.3% of the company’s total North America sales to PepsiCo in the quarter came from the foodservice sector – including solid performance across workplaces, restaurants, recreational locations, hotels and gaming establishments. Sales to Costco COST advanced 15% in the quarter, demonstrating strong brand affinity across multiple retail environments. This diversified channel strategy supports steady revenue growth, insulating Celsius Holdings from seasonal and channel-specific fluctuations.
Apart from this, CELH has strategically entered new markets in Australia, New Zealand and France, with partnerships like Tesco and 7-Eleven providing immediate access to local consumers. This expansion capitalizes on global health trends similar to those seen in the United States, making Celsius Holdings well-positioned to gain a foothold in these high-growth markets. The entry into the UK and other regions also showcases the company’s commitment to international growth, offering a pathway to diversify revenue sources and reduce dependence on the North American market over time.
Navigating CELH Stock: A Guide for Investors
Celsius Holdings presents a mixed but intriguing opportunity for investors. While the company faces challenges in a competitive market, its focus on innovation, brand building and expanding distribution channels demonstrates a strong commitment to growth. However, with the stock trading at a premium and ongoing profitability concerns, investors need to balance the company’s growth prospects with the risks associated with its near-term performance. Potential investors may want to wait it out, while existing shareholders may consider holding their positions, given CELH’s long-term potential and strategic initiatives aimed at market expansion. The company currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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