Celsius Holdings: Big Drop, Big Opportunity? Analysts Say Yes

Key Points

• Celsius stock is down more than 8% after delivering a weak earnings report highlighted by supply chain optimization by its largest distributor.
• After years of strong demand, the company is facing weak store traffic at convenience store locations.
• The company's financial position is sound, but valuation and investor sentiment may keep you on the sidelines for now.  

Celsius Holdings Inc. NASDAQ: CELH delivered a poor earnings report on November 6. Investors had been forewarned that the company was likely to miss on the top and bottom lines, but the size of the miss was enough to send shares lower.  

Celsius delivered revenue of $265.75 million, which was lower than analysts’ expectations of $267.54 million and 30% lower than the $384.8 million the company reported in the same quarter in 2023. Earnings were worse, with the company’s earnings coming in flat, missing expectations by three cents.  

At the end of the trading session on November 8, CELH stock was down 8.9% for the week and approximately 47% in 2024. Consumer staples stocks have been under pressure in 2024, and that’s been particularly reflected in the entire energy drink sector. Even sector leader Monster Beverage Corp. NASDAQ: MNST is down about 6% for the year.  

But Celsius is the worst performer by far. This comes after several years when the company, which touts its “healthy” energy drinks, outperformed the sector. However, that drove up the company’s valuation, which may be coming back to haunt investors.  

Convenience Store Traffic Is Weighing on Sales 

The revenue shortfall for Celsius was largely due to what it referred to as “supply chain optimization” by its largest distributor, PepsiCo Inc. NASDAQ: PEP. Celsius warned of this prior to the earnings report, but the extent of the shortfall was revealed during earnings.  

The concept illustrates the consumer’s key role in the company’s results. Last year, Pepsi overordered Celsius products to keep up with strong demand. However, with that demand tailing off, Pepsi is taking steps to right-size its inventory.  

One of the key areas that Celsius is reporting weakness in convenience stores which accounts for approximately 62% of energy drink sales. Traffic is down in 2024 and therefore sales are down.

The story gets worse for Celsius because the company was successful at raising prices as consumer were willing to pay a premium for a product that was seen as having healthy, if somewhat exaggerated, benefits. Those benefits are taking a back seat to a stressed consumer as well as more competition in the energy drink sector.  

The Case for and the Case Against 

There were some bright spots in the company’s earnings report. First, management reports a tighter correlation between sell-in and sell-through, which supports their belief that the situation is nearly behind. With Pepsi having an 8.5% stake in Celsius, which amounts to $550 million, both sides are incentivized to return to growth.  

Second, Celsius still registered a 46% gross margin for the quarter. This is a profitable company and is becoming more profitable every year.  

Third, international growth was a bright spot in the report, with international sales beating expectations and increasing year-over-year. Finally, the company has a strong balance sheet with approximately $900 million of cash or cash equivalents and virtually no debt.  

But there are some short-term concerns. While the inventory situation may be getting better, it’s likely to still impact revenue for at least the next quarter or two. Also, at over 40x trailing twelve-month earnings and 39x forward earnings, CELH stock remains expensive, particularly as revenue is under pressure. 

Is CELH Stock a Buy? Analysts See 80% Upside Potential

Analysts have been quick to lower their price targets for CELH stock. That said, the Celsius analyst forecasts on MarketBeat show that none of the analysts who lowered their price targets have downgraded the stock. The consensus price target is $54.40, which offers investors an upside of over 80%.  

The stock does look to have found a bottom near its closing price on November 8. However, the options chain suggests that there is more bearish sentiment in the short term, which can make it a difficult stock to trade. As a long-term investment, investors may be about a quarter or two away from taking a position.