Two "Fallen Angel" Shares Worth Investing in Presently
A challenging retail environment has hindered numerous consumer brands this year. Shares of Celsius Holdings (CELH 1.90%) and Lululemon Athletica (LULU -0.43%) are two notable stocks that have taken a hit following subpar financial reports. Here's why these struggling companies may bounce back and deliver substantial rewards to investors.
1. Celsius Holdings
Recently, Celsius shares were selling at $29.31, down from a high of $99.62 earlier in the year. The company experienced remarkable revenue growth in 2023, fueled by its agreement with PepsiCo the year prior. However, a dip in revenue caused the stock to plummet. Analysing further reveals this drop is merely a temporary obstacle, offering a fantastic purchasing chance for long-term investors.
Posting a 37% year-over-year revenue increase in Q1 and 23% in Q2, revenue then slumped 31% in Q3. This unexpected decline contrasts the company's thriving demand in the energy drink market. Nevertheless, this revenue gap does not impact Celsius's brand reputation. The revenue decrease is attributed to supply chain adjustments by its major distributor, which management asserts has been stabilized.
Management persists in expanding the business through the foodservice channel, e-commerce, and global markets. Despite the unfavorable retail environment, Celsius's retail and unit sales escalated 7% year over year in the quarter. This progress surpassed the sales growth across the energy drink category, which expanded by just 2%, indicating Celsius is still an emerging powerhouse in the energy drink market.
On a price-to-sales basis, the stock's recent 4.8 multiple is the most affordable it has been in four years. With the possibility of the company recovering its revenue growth, potentially in the next year, as suggested by Wall Street's consensus estimate of a 16% revenue increase in 2025, investors face the chance of significant returns from these reduced share prices.
2. Lululemon Athletica
The athletic apparel sector has consistently driven substantial growth for influential brands like Nike, and Lululemon Athletica appears to be the next contender. Despite Lululemon's recent share price plummet, the stock has surged 610% throughout the past decade, surpassing the S&P 500's return (^GSPC -0.43%).
Lululemon's income increased by 7% year over year in the July-ending quarter, though slightly lower than its 20% average annual growth over the past decade. Despite this reduction, Lululemon's revenue still outperforms industry leader Nike, which reported a 10% revenue decrease. Lululemon solidifies its reputation as a go-to brand for customers who are willing to pay premium costs for its products.
While Nike has been in existence for half a century, Lululemon is still in its early stages, only gaining ground in apparel and more recent ventures like footwear. Lululemon's global revenue grew by 29% year over year in the last quarter, indicating impressive growth opportunities for the brand across international markets.
Investing in top brands when consumer spending is weak can lead to amplified returns when the economy recovers. While Lululemon expanded by 19% last year, it has several more years of double-digit growth potential ahead. Priced at a forward price-to-earnings ratio of 23.8, investors could potentially enjoy double-digit annual returns over the long term.
- In the wake of Celsius's financial struggles, some savvy investors might see this as an excellent opportunity for long-term financing, as the company's current price-to-sales ratio of 4.8 is lower than it has been in four years.
- In the face of a challenging retail environment, Lululemon's stock may have dipped, but its steady revenue growth and international expansion potential make it an attractive investment opportunity for those looking to invest in established brands with strong long-term prospects.
