Despite aHalving in Value This Year, Can Celsius Stock Regain Momentum in 2025?
Despite aHalving in Value This Year, Can Celsius Stock Regain Momentum in 2025?
While 2024 proved to be a prosperous year for many markets, the stock of Celsius Holdings (CELH), suffering a -3.33% decline, struggled significantly. As of current reporting, shares of the energy drink maker have witnessed a notable decrease by nearly half, and the stock plummeted over 70% from its previous year highs.
Let's take a closer look at the factors behind Celsius's stumbles in 2024 and examine what measures need to be taken to facilitate its resurgence by 2025.
Taper in growth momentum
Although Celsius's energy drinks have been in circulation for some time, the company experienced a surge in popularity with its expansion beyond the traditional gym and fitness niche. The company successfully marketed itself as an alternative, healthier choice, which also attracted a previously untouched female market for energy drinks. This was achieved through its sleek can design and unique flavors, such as Peach Vibe. As per previous statements from the company, the demographic split currently stands at approximately 50/50 male and female consumers.
Following widespread distribution, Pepsico secured a distribution deal and investment in the brand, significantly increasing its US distribution, particularly in the crucial convenience store channel. This contributed to a substantial sales increase in 2023, jumping to $1.3 billion.
However, once the company reached full US distribution, the sales growth naturally began to decelerate. This was coinciding with a decline in convenience store traffic in 2024, as consumers grappled with the effects of high inflation. Energy drinks are often viewed as impulse purchases, leading to category-wide growth slowdown.
To make matters worse, Celsius reported a 31% drop in Q3 sales due to inventory optimization initiatives from its primary distributor, Pepsico. Inventory optimization efforts resulted in a tighter correlation between sell-in and sell-through, causing negative impacts to extend into Q4.
Future growth potential
Expansion into international markets represents the greatest opportunity for Celsius moving forward. Currently, less than 10% of sales are derived from foreign markets, with only a strong presence in Scandinavian countries like Finland and Sweden. Celsius has begun exploring new markets, including the UK and Ireland, while also entering markets such as Australia, France, and New Zealand.
When comparing Celsius to industry giants like Monster Beverage (MNST, up 1.61%) and Red Bull, which generates the majority of its sales outside the US (85%), Celsius possesses an immense growth potential as it enters more international territories. In the US, the company will need to secure appropriate distribution partners in various regions, much like it has managed to do in foreign markets.
Furthermore, continued innovation is another promising development for the company. Celsius introduced its 16-ounce energy drink category, targeting a male demographic using a more aggressive can design and a performance-focused marketing message, initially launching under the name Celsius Essentials in 7-Eleven convenience stores. The introduction reported minimal impact on other beverage sales, with new flavors such as cherry cola, lemonade, and sparkling water continuing to be introduced.
Interestingly, Celsius plans to capitalize on the success of limited-time offerings (LTOs) in the near future, as demonstrated by Keurig Dr Pepper's rapid ascent to becoming the second-largest soda manufacturer in the US. The acquisition of co-packer Big Beverages grants the Celsius brand better control over its supply chain and the opportunity to introduce LTOs. With the Celsius brand already resonating with younger demographics, these strategic promotions can serve as a significant driver for growth.
Valuation and outlook
From a valuation perspective, Celsius is currently priced at approximately 29 times its estimated forward earnings for 2025. Although this is close to the 27 times forward multiple that Monster currently trades at, Celsius is a much smaller entity with a more substantial growth potential.
The Celsius brand helped popularize the energy drink market in the US during 2022 and 2023 and will eventually present a similar opportunity in international markets. Although the company continues to battle inventory discrepancies in the short term, its long-term prospects remain bright. Moreover, the convenience store industry anticipates a recovery in traffic in 2025, benefiting the energy drink category as a whole and positioning the beverage company as a solid rebound candidate for 2025.
To diversify its revenue stream and tap into untapped markets, Celsius should focus on investing in international expansions, as only 10% of its sales currently come from foreign territories. This move could potentially emulate the success Monster Beverage and Red Bull have had by generating most of their sales outside the US.
Recognizing the growing trend of limited-time offerings (LTOs), Celsius can also consider implementing this strategy to attract new customers and boost sales. This is a tactic that has significantly contributed to Keurig Dr Pepper's growth and could potentially work well for Celsius, given its strong resonance with younger demographics.
[Sources: The Motley Fool, STATSRA]