To The Moon

$Celsius Holdings, Inc.(CELH)$

Celsius Holdings, Inc. is a global health and wellness company best known for its range of energy drinks designed as functional, health-focused beverages. Established in 2004 and headquartered in Boca Raton, Florida, the company has gained prominence for its innovative product offerings.

Celsius's flagship energy drinks are positioned as a healthier alternative, featuring proprietary formulas with ingredients like green tea extract, ginger root, guarana, and vitamins. These beverages are marketed to boost metabolism and provide energy while avoiding preservatives, artificial flavors, and high fructose corn syrup.

Over the years, the company has steadily grown its presence in the energy drink industry, competing with major brands like Monster, Red Bull, and Rockstar. Celsius continues to benefit from the rising demand for healthier beverage options among consumers.

Earning Overview (as of Q3 2024)

• Market Cap: $8 billion

• P/E Ratio: 45x (industry average: 25x)

• Revenue Growth (YoY): 23%

• Profit Margin: 15%

• Debt-to-Equity Ratio: 0.25

Celsius Holdings reported mixed financial results for Q3 2024. Revenue totaled $265.7 million, a significant 31% decline from $385 million in Q3 2023, primarily due to supply chain challenges and promotional expenses. Despite these hurdles, year-to-date revenue reached $1.02 billion, up 5% compared to the prior year. Gross profit for the quarter fell by 37% year-over-year, and the gross margin decreased from 50.4% to 46.0%.

International sales, however, showed positive momentum, growing 37% year-over-year to $18.6 million. Additionally, online sales through platforms like Amazon increased 21%, demonstrating growth in e-commerce channels. The company continued expanding its market presence globally, with strong sales performance in regions like Canada, the UK, Ireland, and new markets in Australia and New Zealand.

Diluted earnings per share for the quarter broke even, compared to $0.30 per share in the same quarter last year, reflecting financial pressures from operational and promotional investments.

Business Model and Revenue Streams

North America & Europe Revenue

Celsius generates revenue through several streams:

1. Core Energy Drink Products: The company’s main revenue driver is its ready-to-drink (RTD) functional energy beverages. Popular products include Celsius Originals, Celsius Heat (high-performance), Celsius BCAA+Energy, and Celsius On-the-Go powder packs.

2. Strategic Partnerships: A distribution agreement with PepsiCo has significantly increased its retail footprint, enabling Celsius products to reach more stores globally.

3. E-Commerce: Strong presence on platforms like Amazon and its direct-to-consumer website. E-commerce accounted for a significant percentage of overall sales growth in 2023.

4. International Markets: Celsius has entered markets in Europe, Asia, and Latin America, leveraging global trends in health and wellness.

5. Co-Branding and Collaborations: Partnerships with fitness influencers and gyms help target active, health-conscious consumers.

Investment Thesis

Why Invest in CELH?

• Expanding Market Opportunity: The global energy drink market is valued at $86 billion in 2024 and is expected to grow at a CAGR of 7% through 2030. Celsius, with its health-oriented focus, is well-positioned to capture this growth.

• Innovative and Differentiated Product: The company’s claims of health benefits and its clean-label ingredients differentiate it from traditional sugary, artificial competitors.

• Distribution Partnerships: Celsius’s agreement with PepsiCo amplifies its market presence, leveraging PepsiCo’s global distribution network.

• Strong Financial Performance: Celsius has delivered consistent revenue and profit growth. In Q2 2024, revenue grew 23% year-over-year.

• Health-Conscious Consumer Trends: The increasing demand for functional beverages and wellness-focused products aligns with Celsius’s brand strategy.

Risks and Concerns

1. Health and Regulatory Issues: High caffeine levels and banned ingredients in certain markets (e.g., NCAA restrictions) could harm the company’s reputation.

2. Competition: Competing against well-established brands like Red Bull and Monster, with deep marketing budgets and loyal customers.

3. Dependence on Distribution Partnerships: Heavy reliance on PepsiCo for distribution creates vulnerability should the relationship sour or prove less effective.

4. Stock Valuation and Volatility: CELH’s stock is trading at a high P/E ratio compared to industry averages, and recent declines (e.g., 50% off its peak in 2024) highlight its volatility.

5. Reliance on Key Demographics: The company heavily targets young, health-conscious, and fitness-oriented consumers, which may limit its broader appeal.

Pros and Cons Summary

Pros:

• Strong growth trajectory and increasing market share.

• Differentiated, health-conscious product line.

• Strategic partnerships boosting distribution and brand awareness.

• Alignment with broader health and wellness trends.

• Expanding international presence.

Cons:

• High dependence on PepsiCo for distribution.

• Regulatory risks due to caffeine content and banned ingredients.

• Intense competition in the energy drink market.

• High stock valuation with recent volatility.

• Niche appeal that may not scale to broader demographics.

Valuation

As of December 2024, Celsius Holdings, Inc. has a market capitalization of approximately $6.83 billion and an enterprise value of $6.76 billion. The company's valuation metrics include a trailing price-to-earnings (P/E) ratio of 40.43 and a forward P/E ratio of 34.28, reflecting optimism about its future earnings growth. Its price-to-sales (P/S) ratio stands at 4.94, and the enterprise value-to-EBITDA (EV/EBITDA) ratio is 28.26, indicating a premium valuation compared to some peers in the beverage industry.

Celsius has seen significant growth in revenues over recent years, but its stock price has been under pressure, dropping approximately 44% in the past 52 weeks. Despite this, institutional ownership remains high at nearly 65%, suggesting strong investor confidence in its long-term potential. The company benefits from a strong financial position with over $900 million in cash and minimal debt, supporting ongoing growth initiatives and market expansion strategies.

Conclusion

Celsius Holdings, Inc. offers a compelling investment opportunity for growth-oriented investors who believe in the rising health-conscious consumer trend. However, regulatory risks, market competition, and stock valuation concerns must be considered. Investors should closely monitor the company’s ability to sustain growth and mitigate risks associated with its reliance on high-caffeine formulas and key distribution partnerships.

However, if you believe Celsius is the next Monster Beverage, will grow at the same pace for an extended period of time, and will reach the 29% operating margin, then the company is undervalued. Should the price drop below $30, I might revisit the company and see if my thesis is still intact. Until then, I’m happy to follow the company from the sidelines.

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