At Its Lowest Level Since July 2022, Has Celsius Stock Finally Fallen Far Enough?

On Jan. 23, shares of beverage maker Celsius Holdings (NASDAQ: CELH) fell to an intraday low of $24.55, their lowest price since July 2022.

The energy drink company took the industry by storm over the last few years, backed by a distribution agreement and investment by PepsiCo (NASDAQ: PEP). But growth has slowed, and investors are trying to decide what Celsius is worth. It's been a rough brainstorming session, as the stock fell over 51% in 2024.

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Here's where Celsius stands today, where it could be headed, and if the growth stock is worth buying now.

Image source: Getty Images.

Off to a hot start

With the help of Pepsi, Celsius has taken its business to new heights in recent years, rapidly growing sales, becoming solidly profitable, and expanding its portfolio to four product categories and dozens of flavors.

In its third quarter earnings release, management said that it now has 11.6% market share of the U.S. energy drink category -- making it the clear No. 3 player behind Red Bull and Monster Beverage. But that market share is down slightly from Celsius' peak last May.

On the earnings call, the company said that shoppers may be taking fewer trips to stores, affecting foot traffic. Still, it is confident in its product portfolio and expects to expand in 2025.

The pitfalls of chasing high-flying growth stocks

Celsius is an excellent example of the nosebleed valuations investors are willing to pay for an unstoppable growth stock. When its growth was showing no signs of slowing down, investors were paying an extremely high price for the stock thinking the party would never end. But just a slight decline in revenue and margins has led to a brutal sell-off.

CELH data by YCharts; TTM = trailing 12 months.

This is a prove-it year for the beverage maker since it must restore investor confidence and show it can return to growth despite challenges in buyer behavior trends.

The good news is that Celsius is far from alone in its struggles. PepsiCo is seeing lower volumes across its beverage brands as well as its Frito-Lay and Quaker Oats brands.

Packaged-food companies like Kraft Heinz, Campbell's, and Conagra Brands have seen growth ground to a halt as consumers gravitate toward value-based shopping habits.

Even Coca-Cola's unit case volume declined in its recent quarter.

In sum, the entire packaged food and beverage industry is under pressure, which investors should consider when valuing Celsius.

Celsius is cheaper for good reasons

The stock now has a forward price-to-earnings ratio (P/E) of 27.3 and a forward price-to-sales ratio (P/S) of 3.9, as consensus analyst estimates predict strong growth over the next 12 months. But expectations aren't nearly as lofty as they were a couple of years ago.

CELH PE ratio (forward); data by YCharts.

Investors should consider some risks and potential challenges before jumping into this beaten-down growth stock. The big question is market share. It is far easier to enjoy exponential growth as a smaller company. But Celsius is fairly established by now, and it will be clawing for every percentage point of market share.

It has proved it can raise customer interest in its products, but it is still too young as a company (at this size) to have shown it can retain those customers. In other words, Celsius benefited from the newness factor of its products. Many of its customers are likely aware of the product now, so the challenge will be to make it the go-to choice for a sizable part of the energy drink market rather than depend on customers trying new Celsius flavors for the first time.

Granted, the company can also expand internationally and grow its sales and earnings even if it only marginally increases its domestic market share over time. Now that Celsius' valuation is more reasonable, it doesn't have to deliver breakneck growth; it just has to solidify its position in the market and chart a path toward reasonable growth.

Celsius may appeal to certain investors

Now is a great time to buy shares of Celsius if you believe in the long-term growth of the energy drink market and that it will remain a top-three player and preferably grow its market share domestically and expand internationally.

But there's also the possibility that the company will fail to return to meaningful growth in 2025, and investors will further question its valuation.

No matter how you dice it, Celsius remains a speculative stock. But because the price has fallen so much, the balance between risk and potential reward is far more attractive.

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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 recommends Campbell's and Kraft Heinz. The Motley Fool has a disclosure policy.