Why Celsius Holdings shares lost 19% in August

2024 was a rough year for Celsius Holdings (CELCH 4.47%)the high-end energy drink maker whose shares have soared during the pandemic. August was another challenging month for stocks.

Growth slowed due to overstocking by distribution partner PepsiCo continued to put the brakes on business and stock.

In addition to slowing growth, investors appeared concerned about broader challenges in consumer spending, recession fears and high equity valuations.

Shares ended the month down 19%, according to data from S&P Global Market Intelligence. As you can see from the chart below, stocks fell at the start of the month due to a broader market selloff and a disappointing earnings report.

^ SPX data by YCharts.

Celsius stock cools

Celsius fell sharply in early August sessions as the broader stock pulled back weak economic data. While Celsius is considered a consumer staple, its energy drinks, which tend to be more expensive than juices, are likely more sensitive to the strength of the overall economy.

The stock fell on second-quarter earnings, even as it beat estimates on the top and bottom lines.

Revenue rose 23% to $402 million, ahead of the $393.2 million consensus, which marked a significant slowdown from the prior quarter. Gross margin rose from 48.8% to 52%, a positive sign that helped lift earnings per share from $0.17 to $0.28, ahead of estimates of $0.24.

The company noted that sales of its products were strong, up 36.5% in the quarter at retail and convenience stores. However, management also cited a reduction in available stock by a major distributor, understood to be Pepsi, which spooked investors in the growth stock.

Image source: Celsius.

What’s next for Celsius?

Celsius confirmed these issues on a conference call in the first week of September, saying Pepsi’s orders would fall by $100 million to $120 million in the third quarter, which would significantly hurt its year-over-year growth. year.

Shares fell 12% on Sept. 4, the day of the presentation.

Celsius now trades at a more reasonable valuation — a forward price-to-earnings (P/E) ratio of just 36 — though the days of breakout stock growth are likely over.

The energy drink category is finally maturing, as weak growth at its larger rival shows Monster Drink after a long period of decades.

Celsius stock could certainly move higher from here, but investors shouldn’t expect the kind of major rally seen in the stock earlier in the decade.