Shares of Celsius Holdings (NASDAQ:CELH) fell 16% this week, according to data from S&P Global Market Intelligence. The upstart energy drink brand is facing a slowdown after a few years of monster revenue growth, and recently had a concerning report from the Wall Street Journal over its marketing practices. Nearly in a 50% drawdown, investors have suffered in Celsius stock this year, while the broad market has soared.
Here's why Celsius stock was down yet again this week.
Inventory buildup and shaky marketing practices?
Celsius is an energy drink that focuses on healthier lifestyles with its sugar-free and vitamin-boosted beverages. This has helped the company gain rapid market share in the United States, making it the third most popular energy drink that is gaining quickly on leaders Monster Energy and Red Bull. Revenue has exploded in recent years, hitting $1.4 billion over the last 12 months.
Last quarter, sales for Celsius still grew quickly at 37% year over year, but this was a big slowdown compared to 100%-plus growth in prior quarters. Why did this occur? Because its distributor, PepsiCo, filled up its inventory too quickly in late 2023.
Celsius revenue grows when Pepsi buys inventory from it, not when customers buy product at grocery stores and convenience stores. In prior quarters, the distributor bought a bit too much of Celsius inventory and is now slowing its purchases in 2024, which is causing a revenue growth slowdown.
Investors did not like this development and have sold off Celsius stock. To make matters worse, the Wall Street Journal just put out a comprehensive report on how young women with eating disorders are drinking energy beverages such as Celsius. While Celsius is probably in the clear, as it does not directly tell young people they can lose weight by drinking its product, having a report like this come out from a renowned newspaper is never a good thing.
The stock is still not cheap
Even after falling close to 50%, Celsius stock still has a premium earnings multiple. The price-to-earnings ratio (P/E) over the last 12 months is 54, which is around double the average for the S&P 500. Expectations for growth are still high for this brand, although not as high as earlier this year.
For anyone looking to buy shares of Celsius today, you need to be confident that revenue will continue growing at a double-digit pace for the foreseeable future. If that doesn't happen, the stock will likely fall farther from here.
Don’t miss this second chance at a potentially lucrative opportunity
Ever feel like you missed the boat in buying the most successful stocks? Then you’ll want to hear this.
On rare occasions, our expert team of analysts issues a “Double Down” stock recommendation for companies that they think are about to pop. If you’re worried you’ve already missed your chance to invest, now is the best time to buy before it’s too late. And the numbers speak for themselves:
- Amazon: if you invested $1,000 when we doubled down in 2010, you’d have $20,695!*
- Apple: if you invested $1,000 when we doubled down in 2008, you’d have $42,360!*
- Netflix: if you invested $1,000 when we doubled down in 2004, you’d have $346,786!*
Right now, we’re issuing “Double Down” alerts for three incredible companies, and there may not be another chance like this anytime soon.
*Stock Advisor returns as of July 15, 2024
Brett Schafer 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.