When the Celsius Stock Catch a Break in 2024?

Until this year, Celsius Holdings (CELH -1.85%) it was all about great expectations. Shares of the functional beverage company soared as its slim cans of fruit-flavored, metabolism-boosting sparkling water gobbled up market share in the energy drink space. But the last few months have been a different story.

The stock is now down 41% this year, from a 67% bubble since the peak just four months ago. The latest step was a 12% dive on Wednesday after a problematic presentation to investors. Celsius revealed that pop star PepsiCo – its primary distributor and a minority shareholder – continues to slow down the pace of its orders. It’s a bad look for a stock that was priced for the scintillating growth that Celsius had no problem delivering before its summer swoon. Let’s zoom in on the current matchup before kicking off to gauge his best chance of recovery.

When the fizz goes flat

Celsius stunned investors on Wednesday by announcing that PepsiCo’s orders would drop from $100 million to $120 million for the third quarter ending this month. Compensating for the unexpected decline indicates that scanner data shows retail sales of its products increasing 10% this summer, but revenue recognition is moving at the pace of distributor orders.

This is not the first time that PepsiCo’s slowdown order has tripped up Celsius investors. It was the reduction of PepsiCo’s inventory in the spring that started to eat the shares. Analysts noted that sales channel controls also showed a slowdown in growth. The bullish argument that this is just PepsiCo optimizing its inventory management doesn’t hold much weight now that it appears to be a leading indicator of consumer demand.

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Try calling a fund

Celsius has posted triple-digit revenue growth in each of the past three years. Things will be very different in 2024. Revenues only increased by 23% in their last quarter, and the third quarter is now shaping up to be considerably worse. At least seven analysts have lowered their price targets on Celsius shares since its investor presentation. The feeling and the moment are not kind.

However, you don’t have to look hard to find silver. For starters, all but one of those seven downward revisions have revised price targets that are now between $45 and $53. This represents 39% to 63% in appreciation from the starting line at the end of Wednesday. The obvious bearish counterpart is that these same analysts have been playing limbo in recent months while following the stock market lower. PepsiCo’s inventory management aside, it’s clear that Celsius is ripe and the days of growth in the US won’t reappear anytime soon.

Bulls can argue that Celsius can thrive as an earnings growth story even in a challenging growth period. Its bottom line has grown much faster than its top line since PepsiCo came on board as its primary US distributor two years ago. Remember that 23% revenue growth posted in the second quarter? Earnings per share rose 65% better than expected. Celsius has posted double-digit percentage beats over Wall Street pro expectations over the past five quarters.

Unfortunately, the underlying math won’t be so kind if revenues continue to slow sharply and turn negative as the year plays out. Celsius is trading for 33 times this year’s expected earnings and 28 times next year’s target. These would have been attractive multiples earlier this year when earnings growth was robust and analysts were revising their estimates higher, but those forecasts have been trending lower in recent months. Wednesday’s revelation will only drive those targets lower.

International growth can save the day for Celsius, but it will take a long time for the sun to rise. International growth has outpaced domestic earnings this year, but this is still less than 5% of the revenue mix. A more encouraging short-term catalyst could be an increase in distribution later this year when temperatures begin to cool. PepsiCo speculated earlier this summer that consumers were dealing with brutal temperatures this summer by looking to traditional means of hydration. Will the fall be what brings Celsius back to life?

In a world of beverage stocks, Celsius is no longer an expensive market with dizzying growth. However, it continues to offer a differentiated product with strong brand appeal. Activists or potential buyers may be more interested in Celsius now than investors, but it doesn’t always have to be that way. Winter is here, and not necessarily in a bad way.