Down 61% in 6 Months, Is Celsius a Growth Stock Worth Buying Now?

Source The Motley Fool

Energy drink company Celsius Holdings (NASDAQ: CELH) has been a phenomenal long-term holding, turning a $10,000 investment into more than $1.7 million over the last decade. It's a great example of how a solid product lineup with financial backing, distribution, a powerful supply chain, and marketing can take a company to new heights.

But Celsius' once scorching-hot ascent higher has turned cold, as the stock is now down 61% in just six months. Here's why Celsius could be a growth stock worth buying now, as well as some risks to consider before you do.

A person sitting at a table in front of a laptop computer and looking at the computer in an inquisitive manner.

Image source: Getty Images.

Monster gains

A big reason why Celsius is such an alluring stock is due to its potential to disrupt the energy drink industry. Humankind's obsession with caffeine dates back several thousand years with tea in China, followed by the globalization of coffee during the Renaissance. Carbonated caffeine is a much-more recent discovery -- largely attributed to the birth of Coca-Cola in 1886. But modern-day energy drinks are in a league of their own.

A 12 oz can of Coke has 34 mg of caffeine compared to 120 mg in an energy drink from Monster Beverage. Celsius ramps up the intake to a whopping 200 mg per 12 oz can or even 270 mg for its Celsius Essentials line -- all while promoting that the drink "accelerates metabolism" and "burns body fat."

More caffeine doesn't automatically mean a better product. However, it would be a massive market opportunity if Celsius could give consumers a better all-around experience than Monster or Red Bull. And that potential is a significant reason why Celsius stock soared to new heights earlier this year.

The euphoria isn't entirely misguided. After all, Monster Beverage stock has increased more than 15-fold in the last 15 years. Today, the company sports a $49 billion market cap -- seven times that of Celsius. So there's no denying the market opportunity for Celsius. However, Celsius is no Monster -- at least not yet. Monster is a consistently profitable, high-margin business. It has higher margins than Celsius and a lower-forward price-to-earnings ratio but a higher-forward price-to-sales ratio.

MNST Operating Margin (TTM) Chart

MNST Operating Margin (TTM) data by YCharts.

So, it's not like Celsius is an inexpensive stock just because it is down a ton over the last six months.

Buying Celsius over a stock like Monster is a bet not on where either business is today but where they are headed. If Celsius can take market share from Monster, it will probably be the better long-term holding. However, the risk is that Celsius fails to live up to exceptions, or worse, loses market share and falls out of favor.

Balancing risk and potential reward

In investing, it's easy to get caught up with where a company could be headed and ignore other scenarios. Celsius is at that point in its development where it could continue capturing market share, but it could stall or even lose market share.

Celsius' distribution partnership with PepsiCo has taken its sales to new heights. But many consumers have only recently been introduced to Celsius for the first time. It remains to be seen if those new buyers will permanently switch to Celsius over a competitor like Red Bull or Monster, or incorporate Celsius into their beverage repertoire along with caffeine alternatives like coffee, soda, and tea.

With Celsius, the risk is just as much a consideration as the potential reward. The trailing results and analysts' projections look compelling at first glance, but it's important to understand that those projections depend wholly on the company's trajectory and sustained growth.

Celsius has a long way to go

When it comes to consumer products like Celsius, I'm a big believer in the power of grassroots investing. You can learn a lot about a company by going to a grocery store or convenience store and seeing how Celsius is marketed compared to other products, and maybe even trying it out for yourself. In all honesty, I rarely consume energy drinks and prefer coffee. But Celsius is noticeably better marketed and tastes way better than alternatives -- at least from my first-hand experience.

Still, no amount of marketing glitz and glam can help Celsius succeed long term. It really all comes down to product innovation and Celsius' ability to connect with consumers so they keep coming back to the product. Celsius doesn't really benefit from a one-off purchase by a coffee drinker like me; it needs to "wow" consumers to the point they become repeat buyers.

Celsius' stock looks like a much-better value now that it has sold off, but substantial risks remain. Therefore, opening a starter position in Celsius or just adding it to a watchlist may be a better decision until the company has a few more years of mass distribution under its belt and can prove its products are good enough to merit sustained customer loyalty.

Should you invest $1,000 in Celsius right now?

Before you buy stock in Celsius, consider this:

The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Celsius wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.

Consider when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $826,069!*

Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than quadrupled the return of S&P 500 since 2002*.

See the 10 stocks »

*Stock Advisor returns as of October 7, 2024

Daniel Foelber 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.

Disclaimer: For information purposes only. Past performance is not indicative of future results.
placeholder
EURUSD Long-term Forecast: Can ECB Hawks Overcome the Dollar Bullishness? As one of the most traded currency pair in the forex markets, the price of EURUSD affects many traders. Check out our EURUSD long-term forecast for more information.
Author  Mitrade
Mar 13, 2023
As one of the most traded currency pair in the forex markets, the price of EURUSD affects many traders. Check out our EURUSD long-term forecast for more information.
placeholder
Copper Long-term forecast: Will Copper Price Expected To Soar In 2023?The price of copper is affected by various of factors. You may wonder how the price of cooper will be in 2023, check out our forecast analysis.
Author  Mitrade
Mar 13, 2023
The price of copper is affected by various of factors. You may wonder how the price of cooper will be in 2023, check out our forecast analysis.
placeholder
Understanding the first crypto market crash of 2024 and what to expect nextThe 365-day MVRV ratio suggests that this crash may be just the beginning. If the ETF is rejected before the second quarter of 2024, it could trigger a sharp correction.
Author  FXStreet
Jan 04, Thu
The 365-day MVRV ratio suggests that this crash may be just the beginning. If the ETF is rejected before the second quarter of 2024, it could trigger a sharp correction.
placeholder
Natural Gas sinks to pivotal level as China’s demand slumpsNatural Gas price (XNG/USD) edges lower and sinks to $2.56 on Monday, extending its losing streak for the fifth day in a row. The move comes on the back of China cutting its Liquified Natural Gas (LNG) imports after prices rose above $3.0 in June. It
Author  FXStreet
Jul 01, Mon
Natural Gas price (XNG/USD) edges lower and sinks to $2.56 on Monday, extending its losing streak for the fifth day in a row. The move comes on the back of China cutting its Liquified Natural Gas (LNG) imports after prices rose above $3.0 in June. It
placeholder
Elon Musk Post About ‘Executed’ Squirrel Drives Meme Coin PNUT to $130 Million Market CapSolana-based meme coin Peanut the Squirrel (PNUT) skyrocketed to a $130 million market cap within just three days, a remarkable feat for a coin that was relatively unknown just days prior.
Author  Beincrypto
18 hours ago
Solana-based meme coin Peanut the Squirrel (PNUT) skyrocketed to a $130 million market cap within just three days, a remarkable feat for a coin that was relatively unknown just days prior.
goTop
quote