Down nearly 60% from highs, is Celsius Holdings stock a bargain?

Celsius Holdings (CELCH 0.53%) has been a top growth stock in recent years. Its energy drinks grew in popularity and sales and profits took off as a result, making Celsius an attractive investment to buy and own.

But recently, the stock has struggled. It has been in freefall as investors have become concerned about its future growth prospects. Not only is the stock down 60% from this year’s highs, it’s also trading near its 52-week low.

Is now a good time to buy this weakened growth stock, or could there be more pain for investors?

The company’s growth rate has slowed

What has made Celsius stock a hot buy for investors is the company’s strong sales growth. From just $130.7 million in sales in 2020, its top line has grown to over $1.3 billion in 2023. It’s only a matter of time before this level of growth starts to decline, and in the last few quarters, there have been signs that they are indeed happening. While a 23% growth rate is still impressive, investors may be concerned that the days of ultra-high growth may be coming to an end.

CELH Revenue Data (Quarterly Yearly Growth) by YCharts.

Shares are trading at a drastically lower premium

Investors are often willing to pay a premium for a fast-growing business, and this is evident by a high price-to-earnings (P/E) multiple. As Celsius’ growth rate slowed, the premium investors were willing to pay also decreased. At a P/E below 40, the stock looks cheaper than in the past.

CELH PE report data by YCharts.

The earnings multiple is still high, though. Average stock in S&P 500 it trades at a P/E of just 23. But in Celsius’ case, it’s also growing at a faster rate than your average stock, and a premium is guaranteed. The question is how much is justified.

Analysts’ price targets have also fallen in recent months. But with a consensus price target of around $65, that still implies an upside of more than 60%. However, this is based on analysts’ estimates of where they think the beverage stock could go in the next year. As target prices change, the default increase will also adjust.

In the end, it may come down to how strong economic conditions are and how strong the demand for the company’s products proves to be. In a recession, demand for energy drinks, which are a largely discretionary purchase, may decrease, which could adversely affect the business’s prospects and further affect its growth rate. This would undoubtedly be bad news for stocks.

Should you buy Celsius stock today?

Celsius has grown at an impressive pace in recent years, but with some potentially adverse economic conditions ahead, the business could continue to experience slower growth in the coming quarters.

While it may be a good long-term buy, I would hold off on buying Celsius stock today. Its valuation remains high despite its recent selloff, and investors don’t get much of a margin of safety with the stock should the business struggle. Now that the top line of the business has become significantly higher, it may not be as easy to maintain a high growth rate anyway.

The safest option would be to take a wait-and-see approach with the stock to see how the company can adapt to changing conditions and find a way to accelerate its growth rate.