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The Truth About $Celsius Holdings, Inc.(CELH)$ -- Opportunity or Red Flag? 🧐

When I first invested in Celsius a couple of years ago, it was because I saw it breaking through as a true disruptor in the energy drink market. While legacy brands like Red Bull and Monster stuck to their adrenaline-fueled image and sugar-heavy formulas, Celsius was carving out a unique identity rooted in health, fitness, and aspirational living -- a formula perfectly aligned with Gen Z and Millennials. From gym bags to Instagram stories and influencer campaigns. it seemed like Celsius was popping up everywhere.

Yet, this meteoric rise has collided with a sobering reality, with the stock down more than 50% in 2024. Is this simply a bump in the road for a brand that has otherwise been on fire, or are we witnessing the unraveling of cracks hidden beneath the glossy exterior?

Energy drink sales, once a thriving segment, have cooled, with convenience stores bearing the brunt of reduced consumer foot traffic. Yet Celsius’ challenges run deeper: $Pepsi(PEP)$ , its vital distribution partner, overstocked inventory in previous quarters. This miscalculation triggered a chain reaction, with Pepsi drastically reducing reorders, slicing $124M off Celsius’ annual revenue -- a staggering blow for a company still striving to solidify its high-growth image.

And yet, there’s resilience. Amid all of these headwinds that have occurred this year, Celsius has managed to grow its market share, defying the broader slowdown. Retail sales climbed 7% YoY, pushing the brand to a 12% share of the energy drink market. This isn’t luck -- it’s strategy. The company’s savvy collaborations with influencers and marquee brands like Ferrari and Inter Miami have embedded Celsius into pop culture -- attracting an eclectic mix of consumers across age groups and lifestyles.

The relationship with PepsiCo is both a cornerstone and a gamble. On one hand, Pepsi’s distribution muscle has propelled Celsius into mainstream retail and gyms across North America. On the other, the partnership is heavily concentrated: nearly 60% of Celsius’ revenue hinges on Pepsi. Missteps, like this year’s inventory glut, highlight the fragility of this dependency. Yet, the $550M Pepsi has poured into Celsius signals a long-term commitment -- one both companies seem intent on nurturing.

Looking forward, the real story may lie overseas. International expansion is still in its infancy, with Celsius targeting Europe, Canada, and Australia for growth. Though these markets currently contribute less than 5% of revenue, international sales soared 37% YoY in the latest quarter. If executed well, this could offset domestic volatility and diversify the revenue stream—a vital move for sustained growth.

The dramatic drop in Celsius’ stock price this year reveals a recalibration of expectations. Many investors entered the stock this year, seeing Celsius as a hypergrowth company for years to come, but this isn’t the same company that led me to initiate a position four years ago when it was growing at triple digits. Still, there is a compelling case for the stock under $30. It’s becoming more of an earnings expansion story going forward, and the current valuation reflects excessive fear and uncertainty. The partnership with Pepsi, though bruised by the inventory fiasco, appears back on track. Management points to stronger alignment on inventory and product placement while projecting smoother YoY comparisons starting in 2025.

Celsius is not without its risks. Reliance on Pepsi, combined with volatile profitability, presents real challenges. However, for investors with a high tolerance for short-term instability, the upside is hard to ignore, especially with the stock now trading at 22x NTM EBITDA. As the energy drink sector continues to evolve -- Celsius appears well-positioned for growth, albeit with some bumps along the way.

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