Share prices of energy drink maker Celsius (CELH -0.78%) took a dive over the past month, and the stock is now down about 43% from its peak in mid-May. Despite that, the stock has still been one of the market's biggest winners over the past five years, up roughly 4,400%.
Let's look at why the energy drink-focused beverage stock short-circuited recently, and why now could be a good opportunity to buy it.
Celsius reported slowing growth
Celsius stock's initial run-up was powered by the company's success at tapping into the female demographic of what had previously been a largely male-dominated energy drink market led by companies like Monster Beverage (MNST -1.23%) and Red Bull. The company then broadened its focus, and today, it says about half of its customers are male.
Its period of hypergrowth continued after the company signed a distribution deal with PepsiCo (PEP -0.80%) in 2022. The soda maker's network greatly expanded Celsius' presence in convenience stores. However, the company's products are now nearly fully distributed in the U.S. as its all-commodity volume (ACV) has hit 98%. ACV is a measure of how widely distributed a product is based on its presence in stores that carry that type of merchandise, but weighted by total sales of that product category within those stores. The high percentage suggests Celsius products are already distributed widely in stores with the highest sales volumes.
Now that Celsius products have essentially saturated the U.S. market, it should not be surprising that after three straight years of top-line growth exceeding 100%, that growth has begun to slow. Revenue grew 37% year over year to $355.7 million in Q1. That was a big deceleration from its 95% year-over-year sales growth in Q4.
More recently, Nielsen data in tracked channels reported that Celsius' growth slowed into the 20% range. The company has also lost some market share in the U.S. going from 10.7% in early May to 9.6% for the week that ended June 15. However, Celsius has still been the biggest market share winner year over year.
Not surprisingly, Celsius' success has led to its peers ramping up their pursuit of the female customers that it brought to the energy drink market. This includes established players as well as upstarts such as Alani Nu, which has been one of the fastest-growing energy drink brands.
Image source: Getty Images.
Can Celsius stock rebound?
Celsius could not keep growing at triple-digit percentage rates forever, but it still has growth drivers ahead. In the U.S., the company is still in the process of gaining shelf space within the stores it is now in. At a recent conference, management said that the typical March-April shelving reset at convenience stores was delayed this year, but that it expects a nice summer as it gets additional space and better placements, especially for its Celsius Essentials line.
Continued product innovation and new flavors are also potential growth drivers. Celsius Essentials was its big recent entry into the market, competing in the larger 16-ounce category with a can design that was a bit more aggressive and a marketing focus on performance. The line initially launched in 7-Eleven convenience stores, and the company said its sales have largely been incremental, without a lot of cannibalization of its other beverages' sales.
Its international expansion, meanwhile, is still in the very early stages. Celsius has established itself in some Scandinavian markets like Sweden and Finland with nice success, but it has only just begun entering markets such as the U.K. and Australia. The company has a lot of opportunities to grow into a global brand, but it will need to find strong distribution partners in places like Latin America and Asia.
The recent drop in Celsius stock, meanwhile, has taken the company's forward price-to-earnings (P/E) ratio below 50. Given that Monster trades at a forward P/E of 28 and only grew its revenue 12% last quarter, Celsius' valuation looks attractive given its current growth and opportunities still ahead of it. From a price/earnings-to-growth (PEG) ratio perspective, Celsius trades at 1.1 times. While a 1.0 times PEG is often considered the benchmark of whether a stock is undervalued, for more growth-oriented stocks that likely have long runways ahead, anything under 1.5 times is pretty attractive. By this metric, the stock is also much cheaper than its closest rival Monster which has a PEG ratio of 1.8 times.
CELH PE Ratio (Forward) data by YCharts
With about a 10% share in the energy drink market and a brand that appeals to female consumers who make up a growing share of that market, Celsius looks well positioned to keep growing nicely in the coming years. Add to that the potential benefits of new product introductions, shelf space gains, its long international runway, and its reasonable valuation, and this beaten-down growth stock looks like a buying opportunity.
