Celsius Holdings: Can the Stock Rebound in 2025?

In a year when many stocks thrived, Celsius Holdings (CELH) faced significant challenges. As of now, the energy drink company has seen its shares drop by nearly 50% this year, with a staggering decline of over 70% from its previous highs. Understanding what led to this downturn and what might spark a rebound in 2025 is essential for investors.

Challenges of Slowing Growth

Celsius has been in the energy drink market for a while, but its popularity soared over recent years as it expanded its offerings beyond just gym and fitness channels. Focused on health-conscious consumers, Celsius successfully entered a niche market by appealing to women, a demographic that was previously overlooked in the energy drink sector. The brand's sleek can design and appealing flavors, such as Peach Vibe, helped balance its customer base to approximately 50% men and 50% women.

The partnership with PepsiCo played a crucial role in amplifying its presence in the United States, especially within the convenience store market. This collaboration contributed to a remarkable increase in sales, which more than doubled to $1.3 billion in 2023.

However, as Celsius achieved widespread distribution across the U.S., it's not surprising that sales growth has begun to decelerate. Concurrently, the traffic in convenience stores declined in 2024 due to the pressures of high inflation, which has affected impulse purchases typical for energy drinks.

To compound the challenges, Celsius reported a remarkable 31% drop in sales in Q3, mainly due to inventory adjustments from its largest distributor, PepsiCo. They noticed a tighter correlation between sell-in and sell-through, indicating that this negative trend could persist into Q4.

Future Growth Opportunities

Looking ahead, one of the most significant opportunities for Celsius lies in expanding its international market presence. Currently, only about 7% of its sales come from outside the U.S. The company has successfully established a firm footing in Scandinavian countries like Finland and Sweden and is beginning to explore markets like the U.K. and Ireland, starting with the gym and fitness sectors. Celsius is also making inroads into Australia, France, and New Zealand.

In contrast, major competitors such as Monster Beverage (MNST) derive over 35% of their sales from international markets, while Red Bull significantly capitalizes on global sales, with about 85%. This indicates that Celsius has considerable potential for growth as it seeks new international markets.

Innovation remains another vital avenue for Celsius. Earlier this year, the company launched a 16-ounce energy drink line that targets a more male-oriented audience, showcasing a bolder can design and a performance-focused marketing message. This new line, named Celsius Essentials, debuted in 7-Eleven stores and showed little impact on the sales of existing products.

The brand plans to roll out limited-time offerings (LTOs), a strategy popularized by others in the beverage industry, which was instrumental in elevating Keurig Dr Pepper to the No. 2 spot in the U.S. soft drink market. Additionally, Celsius's recent acquisition of its co-packer, Big Beverages, aims to enhance control over its supply chain and drive innovation through new product introductions. The brand resonates strongly with younger consumers and capitalizing on innovative flavors through targeted marketing can significantly boost sales.

Assessing Valuation

From a valuation standpoint, Celsius currently trades at a forward price-to-earnings (P/E) ratio just above 29 based on anticipated earnings for the upcoming year, which aligns closely with the forward multiple of 27 for Monster. However, Celsius is considerably smaller and possesses a vast growth opportunity ahead.

Despite facing inventory issues in the short term, the company's long-term prospects remain bright. The convenience store industry is expected to see a rebound in traffic by 2025, which would positively influence the entire energy drink market. Given this context, Celsius appears to be a candidate worthy of consideration for a rebound in 2025.

Note: The views expressed in this article do not reflect personal investment advice and are only for informational purposes.

Celsius, Stocks, Growth