2023-08-23 08:04:44 ET
Summary
- Celsius Holdings is trading at all-time highs but is still not expensive, with plenty of growth potential from international expansion.
- Sales growth accelerated in Q2'23, reaching a new quarterly record high of $326 million.
- The stock only trades at an EV/S multiple of 8x, similar to slower growing energy drink peer.
Celsius Holdings (CELH) trades at all-time highs, yet the stock still isn't expensive. The energy drink company continues to fire on all cylinders while still having plenty of growth upside from international expansion. My investment thesis remains ultra-Bullish on the stock.
Source: Finviz
Accelerated Momentum
Only months ago, the market misinterpreted weak sales heading into the PepsiCo (PEP) distribution deal as a negative sign. In reality, the shift caused a spike in sales following the distribution shift to a stronger partner.
For Q2'23, sales growth accelerated back to above 110% . Sales reached a new quarterly record high of $326 million with Celsius reporting the 2nd consecutive quarter of sequential revenue growth topping $60 million.
Source: Celsius Q2'23 shareholder letter
As highlighted in prior research, all of the growth is focused on U.S. sales growth. This region produced $311 million in revenue for 114% growth YoY. International revenues were a meager $15 million and actually caused slower reported sales growth.
The real success is now coming through on the bottom line. Celsius reported Q2 gross margins of 48.8%, up 220 basis points sequentially from 46.6%.
The company saw net income soar to $41 million with adjusted EBITDA reaching $78 million, up an absurd 357% from only $17 million last year and just $49 million in Q1. These numbers change the equation, with Celsius now generating cash and pushing the cash position to $681 million.
According to IRI Energy, Celsius is only the #3 energy drink company in the U.S. with 8.6% market share. With sales doubling, market share doubled from only 4.3% last year, but the IRI data shows the category still growing double digits, led by Celsius growth.
Remember, this is just the U.S. and Celsius has Pepsi as a distributor for international expansion. On the Q2'23 earnings call , CEO John Fieldly highlighted the expansion plans:
While the U.S transition is taking the majority of our focus to-date, we do expect to announce additional international expansion opportunities and plans in the future. With that said, we continue to work towards early 2024 for some opportunities to rollout internationally with 2023 being a year of planning around logistics, production, distribution, et cetera.
The goal will be to create a blueprint in a handful of countries in 2024 for further expansion within 2025 and 2026.
Still Not Expensive
Celsius has doubled off the recent lows, but the stock still isn't expensive. Celsius still trades at a similar forward EV/S multiple as Monster Beverage (MNST) at just below 8x.
The stock regularly trades at a discount to the premier energy drink company. The catch here is that Monster only grew revenues at a 11% clip in the prior quarter.
Either Celsius needs to trade at a much higher premium, or the stock gains will mirror the sales growth to just maintain an EV/S multiple inline with Monster. Analysts are forecasting growth rates approaching 40% in both 2024 and 2025.
For Celsius to maintain an 8x EV/S multiple with 2025 sales reaching $2.4 billion, the stock will need to trade above $250 in late 2024. In addition, this metric isn't factoring in higher cash balances with the energy drink company becoming more profitable recently.
The crazy part to the story is that Monster is forecast to add about $1.6 billion in additional sales in the 2024/25 period, actually topping the $1.1 billion forecast by analysts for Celsius. The budding energy drink giant will still have plenty of room to grow in the years beyond 2025.
Takeaway
The key investor takeaway is that Celsius still isn't aggressively priced as the stock only rallies along with the sales growth. The energy drink company still has substantial growth in the years ahead, with Monster Energy doing nearly 40% of sales from outside the U.S.
Investors should've already owned the stock with the Celsius trading below $90 just back in April, but the stock is still relatively cheap up near $180 due to the growth opportunities still ahead.
For further details see:
Celsius: Early Days Still