Celsius Holdings: When A Great Business Is Not A Good Investment (CELH)

Aaron Davidson

I once signed up for a gym class where the instructor who doubled as the facility’s marketer chanted the mantra, “You only live once, fit it.” After several weeks of attending training sessions, The gym, especially those who have been customers for a long time, lived by that mantra both inside and outside the gym. It convinced me that it was possible.

For example, most people who are into fitness have their own lifestyle choices that dictate what they eat and drink without risking their diet. They are picky shoppers who are highly loyal to food and beverage brands that they believe offer certain benefits or health benefits over other brands.

In recent years, one beverage brand that has gained traction and acceptance among fitness enthusiasts in the United States is Celsius, a fitness supplement drink manufactured and marketed by Celsius Holdings (Selja).

The Florida-based soft drink company markets its flagship Celsius Energy Drink as a proprietary, clinically proven blend that provides energy, boosts metabolism and burns calories. As one of his pioneers in the fitness energy drink segment, CELH has played a key role in the category’s rapid growth in recent years.

Emerging as a leader in the energy drink category

CELH is the fastest growing brand in the energy drink category, posting record Q3 revenue of $188.2 million, up 98% from $94.9 million in Q3 2021 . in the opening remarks 3rd Quarter Financial Results Briefing On November 3rd, CEO John Fieldly spoke about how CELH will become a dominant player in the space.

Citing data from data analytics firm IRI and other sources, Fieldly noted that Celsius was the third largest energy drink in the United States as of Oct. 22. Popular brands on Amazon (AMZN) On a year-to-date basis to Oct. 22, it is the second largest energy drink in the energy drink category with 18.5% share, leading Red Bull with 12.01% share and trailing Monster (MNST) with 26.2% share. I’m here.

The company enjoys strong distribution across all US retail channels, including the largest retailers in the grocery and nutrition channel, as the screenshot below shows.

Some of our Celsius Distribution Partners

Some of our Celsius Distribution Partners (Investor briefing)

Thanks to its reach and product availability, the company can continue to grow strongly.9 analysts covering stocks Predict Revenues of $651.3 million in FY22 (up 107% from $314.1 million in 2021) and $979.06 million by the end of FY23, an important milestone for any growth company. Approaching a certain $1 billion revenue level. .

CELH’s earnings are, as you might expect, unimpressive given that it’s a growth company that has yet to reach optimal levels of size. Below is a snapshot of the income statement and earnings history over the past 12 months to show how profitability has changed over the past two years.

CELH Income Statement

looking for alpha

Earnings history of CELH

looking for alpha

Analysts expect CELH’s EPS to improve significantly to $1.13 in 2023 and $1.91 in 2024.

Optimism over CELH’s prospects grew after the company signed an investment and distribution deal with PepsiCo (PEP) in August 2022. purchased Acquired an 8.5% stake in CELH for $550 million. The deal gives CELH access to his PEP’s large and established distribution network.

The company said in its third-quarter earnings call that its U.S. store count now stands at 174,000 locations nationwide, up from 114,000 doors reported in the third quarter of 2021 to more than 60,000 doors or 54% more than this year’s. It said additional expansions are planned for the rest of the year and through 2023. , accelerated by a PepsiCo distribution deal.

PEP’s investment will be a game-changer as we see how another energy maker, Monster, has benefited from a similar but larger investment and distribution deal with Coca-Cola (KO). There is a possibility. 2015, KO purchased Acquired a 16.7% stake in the company for a cash payment of $2.15 billion, becoming Monster’s preferred global distribution partner. Since then, MNST has taken his $6.4 billion in revenue from his $2.72 billion in 2015. Be expected 2022.

Bulls are probably expecting similar results for CELH after the PEP trade. The fact that PEP owns only 8.5% of his stake in CELH suggests there is room for the beverage giant to increase its stake and get more involved in CELH’s success.

not a good investment

Investors who have maintained CELH for the past three years amid this growth and expansion have been rewarded with exceptional returns. From his under $5 a share deal in 2019, the stock has risen an incredible 20x since then. A return like that is enough to provide life-changing money, assuming you had reasonable stakes aboard it.

These unusually large returns in just three years have drawn short traders in recent months. CELH’s short interest is growing steadily. In August he was in his mid-teens, now he is at 27.50%.

I see no reason to be pessimistic about the underlying business. In fact, I think it will continue to grow. However, the stock seems to have risen too quickly and could face problems in the coming quarters. This could be the reason why bearish bets have increased in recent months.

I have nothing but praise for CELH’s management team for growing the business, but the stock is simply too expensive. high For thinking I would buy it. EV/EBITDA (‘fwd’) of 102.86x and P/S of 12.54x, a staggering 21% higher than the five-year average.

Additionally, the fact that it doesn’t pay dividends and has no history of profits offers limited downside protection should the sales outlook change suddenly and investor sentiment shifts to the negative.

CELH is a great business, but long-term investors looking to turn a profit here may have to wait to exit. Stocks are not a good investment and may disappoint investors who buy at this level with the expectation of future returns.

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