We came across a bearish thesis on Celsius Holdings, Inc. (CELH) on Kroker Equity Research’s Substack by Kroker Equity Research. In this article, we will summarize the bear’s thesis on CELH. Celsius Holdings, Inc.’s share was trading at $32.46 as of Oct 21st. CELH’s trailing and forward P/E were 32.14 and 31.55 respectively according to Yahoo Finance.
A shelf filled with a variety of bottles of energy drinks, juices, and sodas in a convenience store.
Celsius Holdings has garnered significant attention as a fast-growing player in the energy drink sector, particularly within the health-conscious, sugar-free segment. Its partnership with PepsiCo has bolstered its distribution capabilities, allowing the company to expand its market share to 12% in the U.S. and venture into international markets. With approximately $1.5 billion in revenue and an operating income of $335 million over the past year, Celsius has demonstrated strong financial performance. However, the stock has plummeted 43% year-to-date, raising concerns about the sustainability of its growth amid escalating competition and market saturation. While many investors remain optimistic, several risks could hinder Celsius’s trajectory.
The energy drink market, dominated by giants like Red Bull and Monster, has become increasingly competitive, with established brands launching aggressive promotional strategies that threaten Celsius’s market share. Despite the company’s impressive growth figures, it recently acknowledged erosion in market share during its Q2 2024 earnings call, attributing this decline to intensified competition and promotional pricing tactics. These pressures, combined with macroeconomic challenges such as high inflation and rising interest rates, have made consumers more price-sensitive, further complicating Celsius’s ability to maintain its premium pricing strategy.
Celsius’s profitability faces additional pressures from rising input costs and increased sales and marketing expenditures, which, while necessary to fend off competition, could further strain margins if sales growth does not keep pace. The company’s ambitious plans for innovation and international expansion come with inherent risks, particularly in a saturated market where successful product launches are not guaranteed. Unlike Monster, which established a broad consumer base in a relatively untapped market, Celsius is navigating a landscape characterized by fierce competition and limited growth in its niche segment.
Moreover, Celsius’s reliance on PepsiCo for distribution poses significant risks. Nearly 53% of its sales stem from this partnership, which could jeopardize its operational autonomy and profit margins should the relationship deteriorate. Disruptions in PepsiCo’s logistics or shifts in priorities could hinder Celsius’s sales, and its dependency on a single distributor raises concerns about negotiation power and potential conflicts of interest.
Compounding these challenges are internal control weaknesses recently disclosed by the company, raising doubts about the reliability of its financial reporting. Although analysts project strong future growth rates, the deceleration in revenue growth—down from an impressive 90% average between 2018 and 2023—casts doubt on these projections. Given these uncertainties, it remains unclear whether Celsius is a fundamentally undervalued opportunity or a stock that warrants caution. Until it addresses its operational complexities and competitive pressures effectively it embodies both significant potential and substantial risks.
Celsius Holdings, Inc. is also not on our list of the 31 Most Popular Stocks Among Hedge Funds. As per our database, 27 hedge fund portfolios held CELH at the end of the second quarter which was 34 in the previous quarter. While we acknowledge the risk and potential of CELH as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than CELH but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published at Insider Monkey.