Celsius Holdings (CELH) stock price has suffered a harsh reversal this year, turning one of the hottest investments on Wall Street into one of the worst performers. It has crashed from a record high of $100 in March to the current $30. It has also moved to its lowest level since April 2023, bringing its valuation from $22 billion to $7.1 billion.
Celsius and PepsiCo partnership
Celsius Holdings has been one of the fastest-growing companies in Wall Street in the last two years as its beverages went viral, and as the company inked a big partnership deal with PepsiCo, one of the biggest players in the industry.
This partnership mirrored that between Coca-Cola and Monster Beverages. In addition to Coca-Cola being its biggest distributor, it also took a large stake, approximately 16.7% in Monster.
In the same way, PepsiCo has taken a large 8.5% stake in Celsius and became its biggest distributor. This is a big deal because PepsiCo operates in over 200 countries globally and has a good understanding of the supply chain. As such, it would have been difficult and expensive for it to grow its business.
Celsius Holdings’ business has done well in the past few years as its revenue has jumped from over $75.1 million in 2019 to over $1.31 billion in the last financial year. Revenue in the trailing twelve months has soared to over $1.49 billion.
This growth is mostly because of the partnership with PepsiCo and the growing popularity of its brand, especially in the United States.
It has also cited scientific data showing that its drink have a role in the weight loss industry. For example, a report showed that obese women drinking Celsius prior to moderate exercise saw a 46% fat loss and 27% greater muscle mass.
Read more: CELH stock price analysis: is Celsius a bargain or a value trap now?
CELH growth concerns remain
Recently, however, there have been concerns that Celsius’ demand was starting to wane, especially in the United States. A key concern has been data by Nielsen, which tracks the retail sector, which has shown a significant slowdown in sales.
Monster energy drink volume (not including Bang) down 3.6% on flat pricing while Red Bull volume off 2.7% but with a 4.6% avg price increase for 4 wks thru Aug 10, per NielsenIQ. Bang volume down 3.1% with a 3.5% avg price gain.
A recent report showed that Celsius’ drink volume rose by 32% in the week to September 7. While this was a good number, it was also accompanied by a steep 20% price drop, signaling that the company is incentivising spending through pricing.
Celsius is not the only company seeing a slowdown in sales. Monster Beverage volume, excluding Bang, dropped by 4.8%, while Red Bull dropped by 3.7%. Asked about the weakness in Celsius in the last earnings call, Ramon Laguarta of Pepsi said:
“We like the partnership. We are delivering on our part of the partnership. Our distribution points are going up. Our service levels keep going up. So, we’re executing our part of the partnership with discipline and high standards, and we remain optimistic on the partnership.”
The most recent results showed that Celsius’ second-quarter revenue rose by 23% to $402 million. These numbers mean that the company’s business was doing well, albeit its growth rate was much weaker than in the previous quarters.
The other big challenge is that its international segment, while growing, still accounts for a small portion of its business. Its North American business had over $382 million in revenues while the international segment rose by 30% to $19.6 million.
Read more: Celsius (CELH) gets oversold ahead of earnings: buy or sell?
Celsius’s valuation is still a concern
Analysts worry that Celsius Holdings is still a highly overvalued company, with a forward price-to-earnings ratio of 37.63, which is higher than the sector median of 20. The trailing P/E multiple of 29 is also higher than the industry median of 22.
To put it into perspective, Celsius had a net revenue of $1.38 billion in 2023 and analysts expect that the figure will rise to $1.4 billion and $1.63 billion in 2024 and 2025.
Celsius and Monster have similar gross margins, with MNST having 53% and CELH having 50%. Therefore, we can assume that Celsius net income margin will stabilize at 22.8% in the future. If its revenue soars to $2 billion, then its profit will be about $400 million, implying a forward multiple of 15.
Celsius Holdings stock price analysis
CELH chart by TradingView
The daily chart shows that the CELH share price has been in a strong downward trend in the past few years. This crash started when it formed a double-top chart pattern at $99.7 between March and May 2024.
The stock dropped below its neckline at $67.16 on June 10. It also moved below the key support level at $48, its lowest swing in November in July this year. Also, it formed a death cross as the 50-day and 200-day moving averages crossed each other.
On the positive side, the MACD and the Relative Strength Index (RSI) have formed a bullish crossover pattern. Therefore, a rebound cannot be ruled out in the coming weeks, especially when it releases its financial results on November 8.
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