1 Incredible Growth Stock to Buy Before It Rises 58% in the Next 12 Months, According to Wall Street Analysts

Finding a stock that can increase in value by more than 50% in a single year is not easy. Additionally, just because a stock has the potential to go up quickly doesn’t mean it will. Any number of factors could influence the future share price for a company: not just the company’s financial results, but ongoing market sentiment, not to mention the outlook for the economy as a whole.

But one contender has already proven it can consistently produce market-beating results and looks well-positioned to do so again. Celsius Holdings (CELCH 3.86%) has seen its stock slide in recent months as its financial outlook spooked growth-stock investors. But the current decline could be a great opportunity for investors willing to take the risk.

The average Wall Street analyst currently has a price target of $49.40 per share. That’s almost 60% above the current share price. Here’s why analysts are so bullish around Celsius.

Image source: Getty Images.

What’s causing the big drop in inventory?

Celsius has seen incredible growth in recent years, establishing itself as the third largest energy drink company by market share after Monster Drink and Red Bull. It climbed from 3.6% market share in the United States at the start of 2022 to 11.5% last quarter.

But there are some signs that the growth is stopping at least this year. Management noticed a decline in market share at the start of the third quarter. Earlier this year, they saw a reduction in revenue growth due to its distribution partner, PepsiCoadjusting their inventory levels.

CEO John Fieldly said Pepsi ordered $100 million to $120 million less this quarter than it did in the third quarter last year. That’s a huge bite out of Celsius’ $400 million in quarterly sales, meaning the company could be in line for its first year-over-year sales decline since 2018.

Slowing sales is a concern for any company, but when it’s such a sudden change, it can reverse a stock’s momentum very quickly. That’s exactly what happened with Celsius. As concerns began to emerge about Pepsi’s inventory pipeline, investors began selling shares. This has sent the stock down from a high of around $98 in May to just $31 today.

But the selloff may be overdone, as Celsius still shows considerable strength in the end market and has plenty of growth potential ahead.

Why analysts remain bullish

It’s important to remember that Celsius’ distribution deal with Pepsi is still fresh. It started in 2022, with 2023 being the first full year. This added a large buyer for Celsius and helped the company expand distribution much faster than it could on its own. Pepsi gives Celsius access to the valuable foodservice channel, which contributed about 12% of North American sales.

Celsius has also been able to introduce new flavors and get them onto store shelves quickly. It has expanded from 12.5 products per store in 2022 to 20 per store today. The rapid expansion of its product line likely led to strong stock growth for Pepsi. But with Celsius’ lower shelf space growth, Pepsi is better able to right-size inventory needs.

Investors should expect Pepsi’s sales decline to be a one-time event this year. If you look at other sales channels, Celsius is doing well. Sales on Amazonfor example, it was up 41% year-over-year last quarter.

Management also plans to ramp up marketing and promotions in the back half of the year to revive sales. Its gross margin rose to 51.6% in the first half of the year, up five percentage points from last year. This is due to the efficiency of the supply chain as it expands. Management plans to reinvest those gross profits to grow further, which should boost the top line (although investors will see a weaker gross margin).

Finally, there is a great international opportunity. Only 5% of Celsius’ sales come from outside the United States. By comparison, 39% of Monster’s sales come from international markets. Celsius’ international expansion is just starting with a few countries this year, but could eventually become a significant part of its business, especially with the help of Pepsi distribution.

Despite the share price decline in recent months, Celsius’ stock still isn’t cheap by any valuation standard. It currently trades for a forward earnings multiple of about 31. But the current challenges facing the business appear to be temporary, and it should resume its strong growth of the past few years as Pepsi adjusts its stock.

The return to form could push the share price higher. And while it may not return to the levels it was trading at just a few months ago, it could produce well above average returns. For risk-tolerant growth stock investors, it may be worth adding shares at the current price.