Stocks are coming off of a much-needed winning week. $S&P 500(.SPX)$ finished in the green last Friday and avoided four-straight weekly losses. However, investors remain jittery over concerns about a potential slowdown of U.S. economic growth as President Donald Trump’s April 2 start date for reciprocal tariffs approaches.
Considering the different perceptions of the stock, this time TigerPicks chose $Celsius Holdings, Inc.(CELH)$ to have a fundamental highlight to help users understand it better.
$Celsius Holdings, Inc.(CELH)$
Celsius Holdings, Inc. engages in the development, marketing, sale, and distribution of calorie-burning beverages. It offers flavors including grapefruit, cucumber lime, orange pomegranate, pineapple coconut, watermelon berry, and strawberries and cream. The company was founded in April 2004.
1.The Alani Nu Acquisition Looks Good
Celsius stock shot up as much as 35% after its earnings were released two weeks ago. The big reason for the short-squeeze was the $1.8 billion Alani Nu (a high-growth energy drink company) acquisition, which caught many investors by surprise.
Alani Nu Overview
Alani Nu acquisition seems to have been done at a favorable price and adds lots of growth potential for the firm with potential synergies. The acquisition should make Celsius a stronger company, as it will have a larger market share of the energy drink market.
Importantly, Alani Nu is not a low-growth company. Its net sales grew at a ~50% CAGR from 2022-24, according to Celsius. Also, the company doesn't sell just energy drinks, as it even sells snacks, pre-workout, stick packs, and shakes, expanding Celsius's TAM. Additionally, it's already profitable on an adjusted EBITDA basis and is a female-oriented brand -- a market that Celsius wasn't targeting earlier -- with 49% repeat buyers, showing that the customers love the product.
2.Celsius's Valuation Looks Good
Since Celsius is still far from having fully optimized profit margins and the demand for its products is not cyclical (although some of its costs, such as aluminum and transportation freight, are), I will value the company using EV/Sales, assigning it a multiple of 5x. Monster's historical multiple has been 7x.
It is important to note that I am only considering Celsius brand revenues, to which the $595M generated by Alani Nu in 2024 should be added. However, by performing this exercise, we can see that with different compound sales growth rates over the coming years, we already achieved double-digit returns in all scenarios. Only considering the potential sales that the Celsius brand could generate.
Considering that the sugar-free beverage market is expected to grow at a rate of 10%, I don't believe Celsius will have a sales growth rate lower than this. Meanwhile, it will need to improve its margins until they get closer to those of Monster. For all these reasons, I rate the stock as a buy.
3.Risks To Consider
Although CELH's valuation has been de-risked greatly over the past year, the risks are still worth considering. Competition in the energy drink market is fierce.
In fact, Celsius went from consistently gaining market share to market share declines in the past two quarters, which is a worrying sign. Its MULO+ W/C market share dropped from 12.3% in Q2 2024 to 10.9% in Q4 2024. In recent quarters, it looks like Red Bull has been the strongest when it comes to market share trends, so Celsius needs to figure out how to get back on track.
That's why the Alani Nu acquisition is important, as it gives Celsius a new brand with lots of momentum to help drive market share gains for the overall company again. Still, the energy drink and wellness market depends heavily on marketing. Drinks can be "innovative," but at the end of the day, marketing is king in these types of markets. There's always a chance that the trendiness of Alani Nu or Celsius products can fade, especially since there are other alternatives.
The longer the drinks are around, the more we can be confident that they're here to stay -- like Monster and Red Bull. Celsius and Alani Nu are relatively new, but Alani Nu is particularly young, as it was founded in 2018. Execution will be key.
4.The Takeaway
Celsius's valuation looks attractive following the stock's decline in recent trading sessions. It's trading at a lower forward earnings multiple than that of Monster Beverage, even though its expected growth rate is notably higher, which I think gives Celsius stock a reasonable margin of safety.
Of course, execution risk is big. Celsius has been losing market share recently, and the Alani Nu purchase size is nothing to ignore. But I think the acquisition was done at a good price, and given the strength of Alani Nu and the high percentage of repeat customers, I'm optimistic. Plus, the acquisition expands Celsius's total addressable market, as Alani Nu sells other wellness products, too.
Finally, Celsius is quickly becoming a cash cow, and the cash flow it should produce in the next few years will help pay down its new debt or even purchase other companies if it finds another good opportunity.
Stock Price Forecast:
Here are the target price forecasts for the next 12 months from analysts.
Based on 16 Wall Street analysts offering 12 month price targets for Celsius Holdings in the last 3 months. The average price target is $38.36 with a high forecast of $49.00 and a low forecast of $26.00. The average price target represents a 16.49% change from the last price of $32.93.
Resource:
https://seekingalpha.com/article/4765130-celsius-acquisition-hype-is-gone-but-the-buying-opportunity-is-back
https://seekingalpha.com/article/4764486-celsius-holdings-the-thesis-is-not-broken-a-recap-of-the-situation
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