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Why Celsius Stock Dropped 29% Last Month

Shares of energy drink maker Celsius Holdings (CELH 1.31%) dropped 28.6% in June, according to data provided by S&P Global Market Intelligence. Investors have been fretting over the company’s inventory levels and market-share trends, leading to its subpar performance last month.

Fears are bubbling up with Celsius

Celsius and its line of energy drinks have been around for years. But only within the last five years or so has the company really started to climb the energy-drink rankings to take third place in the space. A distribution deal with PepsiCo a couple of years ago really kicked its sales into high gear, and investors have been richly rewarded.

Most investors were likely aware that the growth rate for Celsius wouldn’t keep rising forever — a regression to more normalized growth was always on the table. However, investors are now wondering if the company’s slower growth is already here and whether or not sales could actually fall from here.

Evercore analyst Robert Ottenstein believes that Celsius is already losing some market share in the energy drink space, albeit by a minuscule margin. Other analysts seem to agree, considering many of them lowered their price targets for Celsius stock during June. Moreover, the analyst community is questioning the company’s management regarding Pepsi as it tries to “optimize” its inventory levels.

Some seem to fear that Celsius’ products aren’t selling, leading Pepsi to need less of them to restock its shelves. But management for Celsius doesn’t appear concerned. The growth of the business was so profound in recent years, it was impossible for Pepsi to reliably predict how much was needed. Therefore, the optimization the companies are talking about is really more about finally getting a better handle on how much they need to keep shelves stocked correctly.

What this all means for investors now

In recent years, there have been times that the valuation for Celsius stock reached extreme levels as excitement for its growth shot higher and higher. But over the last couple of months, excitement has faded, dropping the price-to-sales (P/S) valuation for Celsius stock to more normalized levels.

CELH PS Ratio data by YCharts

The days of a triple-digit growth rate may be gone forever for Celsius. But that’s OK. The good news for investors today is that the company is still growing. For example, its revenue during the first quarter of 2024 was still up 37% year over year — not many beverage stocks can say that.

Moreover, Celsius’ growth will likely continue at a more moderate pace for years to come. For example, the company only recently expanded into international markets, and it only generated $16 million in Q1 international sales. For perspective, the international energy-drink market is a $44 billion opportunity, according to data cited by the company.

In summary, Celsius stock was richly valued when investors were exuberant. Now that excitement has cooled, the stock trades at a more reasonable level, allowing a better entry point to invest in a strong business with plenty of opportunity ahead.

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