International sales boost Celsius. Is it time to buy the discounted stock?

It’s been a difficult few months for Celsius Holdings (CELCH -3.81%)which has more than halved its stock since late May. The stock’s struggles come as the energy drink maker has seen growth slow now that it has reaped the benefits of a distribution deal with PepsiCo.

With its core products fully distributed in the US, the days of triple-digit revenue growth are now behind the company. However, second quarter results showed that Celsius still has solid growth prospects ahead.

International sales and Amazon lead the way

For the quarter, Celsius posted revenue of $402 million, up 23 percent from a year ago. North American revenue rose 23% to $382.4 million, while international revenue rose 30% to $19.6 million. The consensus was for total sales of $391.1 million.

There were concerns about the declining growth Celsius saw in channels tracked by Nielsen, but the company posted strong growth during the quarter in two untracked channels. Sales by Amazon were up 41% to $39.9 million, while club channel sales were up 30% to $88 million. It also noted that more than 12% of its sales through PepsiCo were through the foodservice channel.

The company said it now has an 11 percent market share as it remains the No. 1 energy drink. 3 in the US. It also gained shelf space in existing stores, with its average SKU per store increasing from 15 to 20.

The company also had a good reception to its new Celsius Essentials line. All merchandise volumes (ACV) for Essentials reached 64% in the quarter. ACV measures the distribution of a product weighted by the sales volumes of each store in a selected region.

However, on its earnings call, the company highlighted difficult consumer and competitive environments. Growth in the energy drink category has slowed, while one major department store recently reported a 4% drop in same-store sales.

Gross margins increased 320 basis points to 52% and increased 80 basis points sequentially. Celsius benefited from lower raw material and transportation costs.

Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) rose 29% to $100.4 million. Earnings per share (EPS) rose 65% from $0.17 a year ago to $0.28. Analysts were looking for EPS of $0.23.

Turning to its balance sheet, the company ended the quarter with $903.2 million in cash and no debt.

Celsius offered no formal guidance, which is typical of the company. However, it said it expects to have gross margins in the high 40% to 50% range in the back half of the year and that sales and marketing expenses will likely be at the upper end of its target range of 20% to at 23%.

Image source: Getty Images.

Is it time to buy down stocks?

While the US energy drink market has stalled a bit, Celsius’ biggest opportunity is international expansion. On that front, the company posted solid growth in Q2, but is only scratching the surface of its international opportunity. It just started selling its energy drinks in the UK and Ireland in the second quarter, while it plans to launch in Australia, New Zealand and France later this year. This is just the beginning of what could be a long track of growth ahead of him.

Meanwhile, in the US, despite the tough environment, the company is still doing well in more alternative channels such as Amazon, food services and clubs, where it is experiencing strong growth. It has shown it can continue to gain shelf space within existing retail outlets, while its Essentials line has also gained distribution.

From a valuation perspective, the company trades at a slight premium to its rival Monster Drink (MNST 2.34%). It has a forward price-to-earnings (P/E) ratio of 29 times, compared to 25 times for Monster, based on analysts’ estimates next year. However, its revenue is growing at a much faster rate, and its price-to-earnings-growth (PEG) ratio is 1.25 times, compared to 1.94 times for Monster.

Data on CELH PE ratio (forward 1y) by YCharts.

Given the large international opportunity in front of Celsius and its ability to grow shelf space and gain share in the US, the stock looks quite attractively priced right now. I would be a buyer at current levels while looking to add positions on further declines.