1 Growth Stock Down 66% to Buy Right Now

Celsius Holdings (CELCH 4.47%) energy drink has become extremely popular in recent years. The company’s meteoric rise in sales caught on PepsiCohis attention, leading to an investment and distribution partnership and amazing investment returns for shareholders. However, Celsius has lost some of its luster over the course of this year. The stock is now down 66% from its high.

No stock goes up forever. The question is whether investors should buy the dip or whether Celsius’ time in the sun is over.

A sudden drop can completely change the outlook of a stock. Here’s why Celsius fell and why investors should consider buying the stock now.

Resetting expectations

Celsius energy drink products have enjoyed viral popularity since the COVID-19 pandemic. The brand appeals to young, health-conscious consumers with its “Live Fit” marketing angle. Revenue growth accelerated to more than 50% year-over-year in the early days of the pandemic, then picked up once PepsiCo jumped into the picture in 2022.

PepsiCo became Celsius’ primary distribution partner, opening up access to more outlets and helping Celsius launch into new markets. Year-over-year sales growth peaked at over 175%. But with great growth comes great expectations. Celsius’ price-to-sales (P/S) ratio rose to 17, more than double that of its main competitor, Monster Drink.

CELH Revenue Data (Quarterly Yearly Growth) by YCharts

As you can see above, growth rates have slowed dramatically. Not only is triple-digit growth a tough follow-up act, but PepsiCo’s initial push to replenish inventory led to some growth. In its Q2 earnings call, management noted that PepsiCo’s stock moves created a $20 million to $30 million headwind during the quarter. Celsius is a much larger company today, with annual sales of $1.5 billion; revenue is unlikely to grow triple digits again.

In other words, the market has reset its expectations (valuation) for Celsius to a new reality of slower growth.

I can’t wait

Celsius isn’t done growing just because the business isn’t growing at 100% anymore. The company’s $402 million in sales was still up 23 percent from the previous year. If you add $20 million to the $30 million because of PepsiCo’s inventory, the growth would have been at least 5 percentage points higher. There are two take-home points for investors here.

First, Celsius continues to gain market share from its competition. The company’s North American sales rose 23% year over year in Q2. The energy drink market is not growing that fast; according to Mordor Intelligence, the energy drink market in North America will grow at a low single digit rate until 2030. Mathematically, Celsius’ growth comes from somewhere. Monster Beverage is a top competitor and only grew North American sales by 3% year-over-year in Q2. Celsius is likely to outperform other brands.

Second, the story of Celsius’ international growth is very early. Success is not a given, but PepsiCo’s distribution support will help significantly. International sales were up 30% year-over-year in Q2, but only accounted for 5% of total sales, so it’s not moving the needle. This year, Celsius launched in six new countries; the international growth story could become more important over time.

There’s no reason Celsius can’t maintain double-digit sales growth for a while yet.

Evaluating long-term stock potential

Investors could be in for big investment returns if that’s the case.

Despite growing sales much faster than Monster, the stock is cheaper than Monster:

CELH PS report data by YCharts

Celsius is profitable under generally accepted accounting principles (GAAP) with profit margins similar to Monster’s, so it’s hard to argue that Celsius’ earnings aren’t as “high quality” as Monster’s and therefore deserve a lower rating. Conversely, Celsius’ stock appears oversold and mispriced relative to its peers. The stock doesn’t need a higher P/S ratio if sales continue to grow at a double-digit rate; Growth alone would drive the share price higher over time.

Investors shouldn’t let negative price action write the story for Celsius stock. The company is doing well, and the stock valuation more than makes up for slower growth over the long term. The stock wasn’t a great buy at its highs, but it’s a compelling investment idea today.