Is Celsius Holdings a hidden gem in the energy drink market? Find out why this healthy growth stock looks like a strong buy right now.
The stock market is soaring in 2024. The leading market indices have been reaching record levels in recent months. The bull market that started two years ago has plenty of momentum left today.
Energy drink maker Celsius Holdings (CELH -2.33%) didn’t get that memo, though. After rising to all-time highs in the spring, Celsius’ stock has price has plunged 69% lower.
This stock isn’t every investor’s cup of calorie-burning beverages, of course. The incredible business growth of yesteryear has slowed down to merely sensational levels, attracting a horde of bearish investors.
But I think the stock has absorbed most of the price correction it had coming. I’m sorely tempted to buy some Celsius Holdings shares for myself these days, and you may come to the same conclusion after reviewing the three bullish details below.
1. Sugar-free energy drinks are still hot
People care more and more about making healthy food choices. The energy drink market is no exception.
Celsius Holdings’ management says that full-sugar energy drinks saw sales fall 4% in the first half of 2024. Sugar-free drink sales, on the other hand, ticked 7% higher. Arch rivals Red Bull and Monster Beverage (MNST -1.24%) noticed the trend and leaned into their sugarless drink marketing, but that actually helps Celsius Holdings, too. Anything that inspires a consumer to look at the nutrition label before buying an energy drink could boost the mind share of health-focused competitors like Celsius.
The wallet share should soon follow.
2. The Pepsi partnership is a big deal
The distribution partnership Celsius Holdings signed with PepsiCo (PEP -0.60%) in 2022 started paying dividends immediately. The revenue spike that follow was a direct result of Pepsi’s expertise in shipping, and marketing beverages across every store type.
It’s true that the domestic growth has tailed off recently, as the Pepsi-and-Celsius duo built their presence around the nation. It’s also true that Pepsi is dialing back its energy drink orders by roughly $120 million in the third quarter of 2024. The distribution partner ordered too much product in the first half of the year and needs to clear out overloaded warehouses. This pullback plays a significant role in the low stock price you see for Celsius Holdings today.
But I’m talking about a long-term deal where this quick inventory correction will feel like a minor speed bump in the long run. It’s only a matter of time before Pepsi is shipping as many Celsius cans as the brewer can produce. Moreover, the energy drink opportunity is huge around the world and these partners are barely scratching the surface of international distribution so far. Monster Beverage derives nearly half of its quarterly sales from international markets and so does Red Bull.
Celsius Holdings’ sales are 95% domestic. There’s a huge growth opportunity in the overseas markets, almost entirely untapped so far.
3. The company should do better in a revitalized economy
Bull markets don’t always coincide with a strong global or American economy. Consumers and businesses are still struggling with the aftermath of the recent inflation crisis, and people are still walking on price-sensitive eggshells around the convenience store.
The 7-11s and Wawas of the world represent an outsized portion of the energy drink market, and they have seen much less foot traffic in this tight economy. Celsius is expanding its shelf space in that lucrative, high-margin market by leaps and bounds. That trend should continue in a healthier economy.
“We saw 45% space gains within convenience, where a preponderance of energy sales are coming from, Celsius executive Toby David said in an investor conference last month. “We think that’s really going to be a growth driver for us in the future. So when the category does bounce back, we feel like we’re well positioned.”
It’s time to buy this misunderstood growth stock
That’s far from the whole story. I could keep talking about Celsius Holdings’ robust balance sheet and its proven ability to take market share from more experienced rivals, but that will have to wait for another article.
My three bullish arguments add up to a strong investment thesis even without those extra details. Long story short, skeptical investors are throwing Celsius Holdings out with the bathwater, making the stock incredibly affordable for the rest of us. If you want to buy this promising growth stock on the dips, this is your chance to take action.
Anders Bylund 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.
