CELH’s Lack Of Bullish Support Is Highly Alarming, Though The Worst May Be Behind Us
We previously covered Celsius Holdings, Inc. (NASDAQ:CELH) in June 2024, discussing why we had upgraded the stock as a Buy after the deep correction in Q2’24, with it triggering a lower entry point and expanded upside potential against the company’s profitable growth cadence.
Combined with the growing domestic share, untapped international market, and richer balance sheet, we had believed that it remained well-positioned to generate robust growth ahead.
CELH YTD Stock Performance
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Since then, CELH continues to breach numerous support levels, partly attributed to the market rotation from high growth stocks by mid July 2024 and the supposed consumer softening demand for energy drinks.
This is despite the decent FQ2’24 earnings call, worsened by the tougher YoY comparison and the tightened discretionary spending attributed to the uncertain macroeconomic outlook.
For reference, CELH has reported FQ2’24 revenues of $402M (+13% QoQ/ +23.3% YoY) and adj EPS of $0.28 (+3.7% QoQ/ +64.7% YoY), with the top-line headwinds attributed to the decelerating North American sales at $382.35M (+12.6% QoQ/ +23% YoY) and impacted APAC sales at $860K (+27.4% QoQ/ -46.4% YoY).
While the company continues to report accelerating EU sales at $16.68M (+17.9% QoQ/ +40.1% YoY), the region’s sales remain miniscule compared to its top/ bottom-line driver, the North American region.
Much of the headwinds are attributed to the rising US CPI for nonalcoholic beverages and beverage on MoM/ YoY basis, partly attributed to CELH’s previous price hikes in 2021/ 2022 to counter the supply chain issues.
The rising prices have already triggered the consumer’s “swing towards more grocery mass online purchasing” compared to convenience stores – a pessimistic development, since the convenience channel has been the “largest channel for energy drinks… accounting for two-thirds of category sales.”
Given that a “12-pack of 12-ounce Celsius costs about $21, nearly triple the price of Coca-Cola,” it is unsurprising that CELH’s premium pricing may trigger a further softening of consumer demand for a little longer.
This is especially since the normalization in macroeconomic outlook and borrowing costs are likely to be prolonged, depending on the Fed’s upcoming pivot in the September 2024 FOMC meeting, with the company’s US sales growth likely to continue decelerating compared to pre-pandemic 2Y CAGR of +44.2% and pandemic 4Y CAGR of +104.6%.
Moving forward, CELH’s FQ2’24 accelerating bottom-line growth has been attributed to the increasingly rich gross profit margins of 52% (+0.8 points QoQ/ +3.2 YoY) and adj EBITDA margins of 24.9% (+0.2 points QoQ/ +1 YoY).
Even so, we are uncertain how long these numbers may last, since the management already aims to intensify their promotional programs and investments across its marketing platforms in H2’24, with the intention of driving incremental growth potentially triggering near-term pressure on its profit margins.
The Consensus Forward Estimates
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These developments may also be why the consensus have drastically lowered their forward estimates, with CELH expected to generate a lower top/ bottom-line growth at a CAGR of +17.9%/ +20.1% through FY2026.
This is compared to the previous estimates of +34.5%/ +35.3% and the historical growth at +104.6%/ +94.9% between FY2019 and FY2023, respectively.
These numbers do not appear to be overly bearish as well, based on CELH’s H1’24 numbers at $757.7M (+29.3% YoY) and $0.55 (+83.3% YoY), compared to H1’23 numbers of $585.82M (+103.8% YoY) and $0.30 (+328.5% YoY), respectively, with it marking the end of its high growth trend.
Even so, readers need not fret, since we believe that there is minimal risks to its future execution, as observed in the increasingly healthy balance sheet with a net cash position of $903.21M (+2.6% QoQ/ +32.6% YoY) and robust LTM Free Cash Flow generation of $245M (+150% sequentially).
These may allow the management to incrementally invest in its beverage innovations and fulfilment capabilities during the challenging next few years.
So, Is CELH Stock A Buy, Sell, or Hold?
CELH 4Y Stock Price
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For now, CELH has lost most of its 2023/ 2024 gains, with the stock continuing to chart lower lows/ highs while trading below its 50/ 100/ 200 day moving averages.
Based on its stock prices of $32.50 at the time of writing and the LTM adj EPS of $1.02 ending FQ2’24 (+259.3% sequentially), we are looking at an estimated P/E non-GAAP valuations of 31.86x, down from its 1Y mean of 61.13x and its 5Y mean of 325.21x.
Based on the consensus adj EPS estimate growth at a CAGR of +20.1% through FY2026, we believe that CELH is still trading attractively at PEG non-GAAP ratio of 1.58x.
Even when compared to the sector median PEG non-GAAP ratio of 2.27x and its beverage peers, including Monster Beverage Corporation (MNST) at 2.44x, PepsiCo, Inc. (PEP) at 3.32x, Coca-Cola Company (KO) at 4.19x, and Keurig Dr Pepper (KDP) at 2.65x, it is undeniable that CELH is cheap here.
This is on top of the excellent upside potential of +33.8% to our long-term price target of $43.50, based on the consensus FY2026 adj EPS estimates of $1.36 and the P/E non-GAAP valuations of ~32x.
As a result of its high growth investment thesis and growing Ready To Drink Energy market share to 11.4% (+2.8 points YoY), we are maintaining our Buy rating for the CELH stock.
Risk Warning
With CELH already breaking through numerous support levels since the 2024 peaks, it goes without saying that the bulls have yet to swoop in to defend the ongoing pullback over the past four months.
While short interest has moderated from the recent peak of 32.72% to 9.17% at the time of writing, the stock’s volatility can not be ignored indeed, worsened by its decelerating US sales, its mixed international numbers, and the mixed hard/ soft landing projections.
Interested readers may be better off observing CELH’s stock movement for a little longer, before adding once bullish support materializes, potentially at its next support ranges of $27s and $31s.
Near-term patience may be more prudent indeed.
