Celsius Holdings Stock Up 200% In 3 Months But The Party Is Not Over Yet!

Despite an eye-popping 243% rise since the March lows of this year, at the current price of close to $11 per share we believe that Celsius Holdings stock (NASDAQ: CELH) still has some upside left in it. The stock price of Celsius Holdings – a company that develops, markets, distributes, and sells functional calorie-burning fitness beverages in the United States and internationally – has rallied from $3.22 to $11.04 off the recent bottom compared to the S&P 500 which increased by about 35% from its recent bottom. The stock was able to beat the broader market over the last 3 months mainly after posting a much better than expected Q1 2020 performance. Additionally, the US government’s announcement of a string of measures to keep businesses afloat has led to expectations of a rise in consumer demand and reduction in supply bottlenecks.

Though the stock is 110% above the level at which it was at the end of 2017, we think it has still not reached its fair value and could see a further uptick in the near term. Our dashboard What Factors Drove 110% Change In Celsius Holdings Stock Between 2017 And Now? provides the key numbers behind our thinking.

Some of the stock price decline seen during the 2017-2019 period was mainly due to the drop in the company’s P/S multiple. Though the company’s revenues more than doubled from $36.2 million in 2017 to $75.1 million in 2019, the stock remained subdued as CELH continued to report losses in 2017 and 2018. Its operations turned profitable in 2019, after which the P/S multiple has been on an upswing. The multiple shot up from 4.5x in 2019 to over 10x currently.  A higher multiple reflects expectations of higher revenue in the near term as the company enters into new agreements and adapts to changes in its operations to suit the current situation of a pandemic.

What’s the likely trigger for an upside?

The global spread of coronavirus has led to lockdown in various cities across the globe, which has affected industrial and economic activity. This is likely to adversely affect consumption and consumer spending. However, Celsius seems to have largely been immune to the current crisis. As consumer preferences are changing, people are moving away from carbonated soft drinks, which has led to a rise in demand for CELH’s products. This was reflected in the company’s Q1 2020 results where its revenue came in at $28.2 million, recording a rise of 95% y-o-y and beating analysts’ estimates of $23.5 million. Additionally, gross profit jumped 128% due to higher revenue and cost efficiencies. Through new and expanded relationships with US retailers and additional direct store delivery (DSD) distribution agreements, CELH has expanded its presence and increased throughput to consumers during Q1.

During the current pandemic, many consumer goods companies have been affected as consumer buying has further shifted to online platforms. CELH has been adapting its business model to this changed reality and emphasized online buying options through new Ecommerce partners in Q1. The result is that CELH’s digital and online platforms recorded a 167% increase in average daily online sales volume in Q1 compared to the prior year. The management has announced that its focus is to expand CELH’s product reach nationwide and to continue adapting to changing consumer buying behavior.

Over the coming weeks, we expect continued improvement in demand and subdued growth in the number of new Covid-19 cases in the U.S. to buoy market expectations. Following the Fed stimulus — which helped to set a floor on fear — the market has been willing to “look through” the current weak period and take a longer-term view. With investors focusing their attention on 2021 results, the valuations vs historic valuations become more important in finding value.

In the post-Covid scenario the company’s revenue is expected to continue to record healthy growth while margins are projected to improve further. This could lead to its P/S multiple rising further in the near term, thus possibly driving its stock price higher to about $12.

While Celsius Holdings’ stock is expected to rise further, which S&P 500 component stocks have the best chance of outperforming the benchmark index? Our 5 In the S&P 500 That’ll Beat The Index: TWTR, ISRG, NFLX, NOW, V look promising.

For further insight into the beverages space, take a look at the comparative analysis of Coca-Cola vs. PepsiCo and also why Keurig Dr Pepper is better placed compared to Coca-Cola

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