If you had to name a stock that's turned $1,000 into more than $50,000 in the last four years, you'd probably guess a disruptive technology company doing something with software or AI.
But one company that was able to pull off that remarkable feat did it without any dramatic technological innovations. That's Celsius Holdings (CELH 1.63%), the energy drink maker that has been one of the top-performing stocks of the last four years.
As the chart below shows, Celsius stock is up nearly 5,000% over the last four years, dwarfing the returns of the S&P 500.
Now, Celsius is at something of a crossroads, as it's grown enough to establish a significant presence in the energy drink market. It's attracted Pepsico as a distribution partner, and it rewarded investors with a 3-for-1 stock split in November 2023.
Is it too late to invest in Celsius, or can the fast-growing energy drink company reward new investors and still make them millionaires? Let's take a look at the evidence following Celsius' latest earnings report.
Image source: Celsius.
1. Growth is still strong
Celsius has come virtually out of nowhere since the start of the pandemic. The brand got its start in gyms and fitness centers, and then gained a following on Amazon during the pandemic, benefiting in part from the stay-at-home effect.
It's since gained distribution in grocery stores, membership clubs like Costco, and convenience stores, benefiting from its partnership with Pepsi.
Reported revenue growth slowed to 37% in the first quarter, but that figure is significantly slower than underlying growth because of inventory corrections at Pepsi, which makes up 62% of the company's sales in North America.
Demand among the end consumer remained strong as sales in chain stores in the U.S. rose 72%, according to data from Circana.
Management also touted upcoming shelf space gains in the retail channel this summer, which it said would help propel its market share in the energy drink sector above its current level of 11.5%.
2. Margins are expanding
Celsius delivered impressive gross margin expansion in Q1, from 43.8% to 51.2%. This reflects the company's own inventory controls, lower raw material pricing, and reduced freight costs.
Management said it had achieved $50 million in inventory optimizations over the last 15 months, and is gaining leverage as it grows.
Over the long term, the company has said it's targeting gross margin in the upper 40s, but the Q1 results show it could exceed that.
Operating margin also expanded, leading operating income to nearly double, and earnings per share jumped from $0.13 to $0.27. Continuing margin growth would be a key source of value creation for investors.
3. There's still significant opportunity for growth
Despite growing by around triple digits for the last few years, the company still has a number of valuable growth opportunities that should support its long-term growth. First, with the help of Pepsi, the company has begun expanding into the food service channel, selling its product at Dunkin' and Jersey Mike's.
In an interview with the Motley Fool, CEO John Fieldly said this was a whole new use case for energy drinks. This is another sign that Celsius is growing more by expanding the energy drink category and bringing in new customers than by taking market share from competitors.
The international market presents a significant whitespace opportunity as well. Currently, international sales make up just a small percentage of the company's sales, even though they're much larger for established soft drink companies like Pepsi and Coca-Cola.
In Q1, international revenue made up less than 5% of its total. The company is now expanding in the U.K., launching in select gyms and retailers. It's also signed a distribution partner in Australia, and it plans to enter France and New Zealand in the fourth quarter.
Overall, the company sees an opportunity to grow its market share to 20% from 11.5% in North America, nearly doubling its share of a fast-growing category.
With rapid revenue growth, expanding margins, and new growth opportunities, Celsius still has a lot of upside potential in front of it. If the company continues to execute, the stock looks like a good bet to continue to outperform, and help make you a millionaire.
