By James Brumley, The Motley Fool, Trades Of The Day, 2024-08-12
Given that the S&P 500 is down nearly 7% since its mid-July peak, obviously more than a few investors are jittery. And understandably so. The global economy isn't doing quite as well as recently presumed and this is what can happen to stocks when that's the case.
Savvy investors, however, recognize this pullback for exactly what it is: a buying opportunity. A whole bunch of stocks are now on sale at a deep discount due to this sweeping weakness. But it's a sale that likely won't last very long. If you're interested in buying, you might want to do so sooner rather than later.
And if you're specifically looking for a new high-risk/high-reward growth stock to scoop up at a bargain price, think about stepping into Celsius Holdings (CELH) while shares are down an incredible 56% from their May high.
Why Celsius could be unstoppable
It's not exactly a household name, but if it rings a bell there's a reason. Celsius is a fast-growing energy drink brand taking aim at a market currently dominated by names like Red Bull and Monster Beverage.
Celsius is doing things differently than the two biggest names in the space. Celsius touts its drinks as having no sugar and providing a “proprietary blend [of ingredients] that enacts thermogenesis to accelerate metabolism and increase caloric burn.” Celsius has designed its products specifically for fitness-minded consumers, who are increasingly embracing the brand.
The company's been growing like gangbusters since its products first began getting real traction back in 2019, shortly after CEO John Fieldly took the helm. His biggest contribution thus far has been getting the company's products in more convenience store coolers, where its target audience is most likely to make a quick purchasing decision. That's a big reason the company's annual top line has grown from around $30 million then to over $1.3 billion now. Last quarter's top line of $402 million was up 23% year over year, breaking a Q2 record.
Its partnership with PepsiCo certainly doesn't hurt either. As part of a major equity investment made in Celsius then, since 2022 PepsiCo has also been a distributor of its energy drinks.
The thing is, there's much more opportunity ahead for this novel brand.
The bullish argument for owning this growth stock
Celsius Holdings' past growth is a tough act to follow. The company is not expected to repeat last year's top-line growth rate of 102% anytime soon, if ever again. It's just too much. This inevitable sales slowdown is arguably what left the stock so vulnerable to a sell-off this year.
As is so often the case, though, investors overshot. Celsius is still doing better than the stock's recent performance suggests.
Chief among the bullish arguments is the fact that while revenue growth may be slowing, earnings growth is moving at strong pace, and should continue doing so into the future.
Data source: StockAnalysis.com. Chart by author.
This is mostly due to relatively lower operating costs. Although big expenses like marketing and advertising are still rising, they're not rising nearly as much as revenue itself is; scale is everything with a competitive, consumer-facing business like this one.
That being said, Fieldly is entertaining a couple of new business ideas that could prove to be enormous growth drivers. Although entering either market is still years away, the company's chief executive mentioned in a recent interview with FoodDive.com that health-oriented foods and water are at least on his radar. In the meantime he remains focused on expanding the brand's presence in the all-important convenience store market, and the international market in particular, where Celsius has just started to turn up the heat.
The worldwide energy drinks market is expected grow at an annualized pace of 8.5% through 2032, by the way, according to a forecast from Straits Research. That's healthy, but certainly not red hot.
In an industry where younger consumers are looking for something besides often-sugar-laden leading brands, Celsius' brilliant positioning as a fitness-oriented alternative means it's poised to capture more than its fair share of this growth.
Celsius stock is way down for all the wrong reasons
So why has this growth stock with a great story been more than cut in half in less than three months?
A bearish market environment has a great deal to do with the most recent part of this weakness, although most of it can be chalked up to mere volatility. The bulls got a little bit ahead of themselves in February and March, tacking on more gains to last year's big advance that never really got a chance to cool off. Now, sellers are driving the needed correction that didn't quite happen then.
This stock will eventually reflect the underlying company's growth prospects. There are certainly plenty of them ahead in light of the way Celsius is addressing the energy drink industry's core customers, and in particular, their health-minded concerns.
Although Celsius Holdings doesn't have a particularly large analyst following, over half of them keeping tabs on it consider the stock a strong buy. Their consensus price target of $76.53 is nearly 90% above Celsius stock's present price. Risk-tolerant newcomers would be stepping in at a time when shares already have a great deal of Wall Street's support, which isn't a bad way to start a new trade.
— James Brumley
Source: The Motley Fool
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