What to Know Before Buying Celsius Stock

Believe it or not, Celsius (NASDAQ: CELH) stock skyrocketed an unbelievable 7,330% in the five-year period leading up to hitting a peak in March 2024. But since that point in time, this health-focused energy drink brand has fallen out of the market's good graces. As of Nov. 20, share prices are down 58% from that all-time high level.

Investors are looking to take advantage of the weakness. Before investors buy the beverage stock, it's important to know these things about Celsius.

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Are the huge growth days over?

During the most recent quarter (Q3 ended Sept. 30), Celsius registered 173% year-over-year revenue growth to $725 million. This was mainly driven by its recent acquisition of Alani Nu, which was completed in April and is currently being integrated. The Celsius brand itself posted 44% sales growth in Q3.

The market might be punishing the stock because of slower gains. Between 2018 and 2023, Celsius' revenue grew an eye-popping 25-fold. The top line isn't soaring like it once was.

Another issue is the probability that inventory is piling up. The top line for Celsius brand might have risen by 44%, but scanner growth, which measures point-of-sale transactions, was just 13%.

For what it's worth, Celsius does have a meaningful opportunity to expand overseas. International revenue only accounts for a tiny fraction of the overall business. By leaning more on PepsiCo's broad distribution network, Celsius should be able to reach more consumers across the globe.

Wall Street consensus analyst estimates call for revenue to increase at a compound annual rate of 21% between 2025 and 2027.

Investors should know the risks

To gain a thorough understanding of a company, investors must also pay attention to any risks. For Celsius, one of the top risks is that its energy drinks become irrelevant and lose their popularity.

This risk ties into the lack of an economic moat. Monster Beverage and Red Bull, the two clear leaders in the market, certainly have stronger brand recognition than Celsius does. And when it comes to consumer goods, brand loyalty can be everything. This can put a cap on Celsius' ultimate growth potential. Perhaps the business is starting to hit a wall, as indicated by slower scanner sales for the Celsius brand.

The best businesses in the world are those that have developed durable competitive advantages that protect their positions in their respective industries. Celsius hasn't proven that it's done this yet. And that adds risk to the equation.

The stock might be trading significantly off its peak, but investors should tread with caution.

Neil Patel has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Celsius and Monster Beverage. The Motley Fool has a disclosure policy.