3 Reasons Celsius Stock Can Bounce Back in April

Like many stocks these days, **Celsius Holdings **(CELH 4.41%) has gone worse than flat. Shares of the company gaining market share in the functional sparkling beverage market have fallen for six consecutive trading days, a 21% plunge in that time.

A couple of factors have weighed on Celsius stock. Costco (COST +0.45%) introduced a line of energy drinks under its Kirkland Signature label last week, and rising gas prices could make consumers less likely to spring for unnecessary indulgences. The market itself has been weak, declining for the fourth straight week.

Still, the pullback still feels overdone. Celsius stock hit a new 10-month low on Friday, but zoom out, and the shares have fallen 66% from their all-time high set two years ago. Let’s go over some of the reasons Celsius shares can bounce back next month.

Image source: Getty Images.

1. Costco? Really?

As a shareholder, fan, and card-carrying member of Costco, I know all about the allure of the warehouse retailer. Kirkland Signature brand is a juggernaut that generates roughly $90 billion a year across its growing product line.

I also realize Celsius is in the crosshairs of Costco’s launch for a new line of energy drinks. Its initial flavors – orange, peach, and tropical – aren’t gunning for Red Bull or Monster. They’re in the flavor profile for Celsius’ namesake brand and its Alani Nu platform. The cans have the same form factor and even contain the same amount of caffeine.

They differ in that Costco’s entry lacks Celsius’s thermogenesis weight-loss hook. They will also differ in distribution. Kirkland Signature cans will cost about half as much, but they’re sold through Costco. Folks won’t get them at the gym, supermarket, convenience store, or restaurant where Celsius is sold. The move will eat into the Celsius that sells at the warehouse club, but it might also expand the market for the functional energy drink category.

But do you think PepsiCo (PEP +1.47%) – Celsius’ stateside distributor and minority shareholder – cares about the impact of warehouse clubs for its namesake soft drinks? It’s not losing any sleep about Sam’s Cola. It’s also not going to bat an eye at Kirkland Signature Cola sales, because they no longer exist. Costco left the soft drink market a decade ago. The folks at LaCroix may not even know that there’s a Kirkland Signature line of flavored sparkling water.

Costco’s entry into the market isn’t a positive development. It’s just not as problematic as the market believes, especially given the warehouse club operator’s misses when it took on beverage stocks in the past. I’m not alone in this view. Analysts at Roth Capital, Citi, and TD Cowen all issued notes late last week, arguing that the shares are oversold on the Costco news.

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NASDAQ: CELH

Celsius

Today’s Change

(-4.41%) $-1.57

Current Price

$34.02

Key Data Points

Market Cap

$8.7B

Day’s Range

$33.93 - $35.52

52wk Range

$32.36 - $66.74

Volume

267K

Avg Vol

5.4M

Gross Margin

49.20%

2. Celsius is cheaper than you may think

After three consecutive years of triple-digit sales growth, Celsius hit some serious growing pains in 2024. It didn’t take long to get back on track after acquiring the smaller but fast-growing Alani Nu in a deal valued at an accretive $1.65 billion. Celsius has returned to strong growth after the deal closed in March of last year. Most of the heady gains are not organic, but the flagship brand has also started to grow again.

Revenue has soared 85%, 173%, and 117%, respectively, since the deal closed. Analysts are modeling a top-line jump of 132% in the current quarter, which ends this week and will be announced in early May. Growth will moderate after that, with the lapping of the transformative Alani Nu deal. Wall Street pros still see a respectable 24% jump in organic revenue for the second quarter.

With two brands now topping $1 billion in annual sales – and PepsiCo handing Celsius its Rockstar energy drinks brand in the U.S. and Canada en route to boosting its ownership stake – Celsius is now a rock star itself. Despite the strong and nearly perfect growth trajectory over the past decade, it’s surprisingly cheap. You can buy Celsus for 21 times this year’s earnings and a multiple of just 16 based on next year’s analyst profit target.

3. Don’t bet against a beater

Celsius has delivered impressive revenue growth since closing on its Alani Nu deal. The performance has been even better on the bottom line. Celsius has easily beaten analyst earnings estimates in the last three quarters.

Data source: Yahoo! Finance.

It’s not lost on me that the degree of the beat has narrowed with every quarter. Analysts are starting to catch up to reality, but they’re still vastly underestimating the earnings power here. In the meantime, estimates will keep pushing higher. The forward earnings multiple will keep moving lower. Today’s discounted shares appear to be a bargain.