Every investor wants to make a lot of money from their holdings. This is exactly what Celsius (CELH 0.25%) has done. The health-focused energy drink purveyor has seen its shares skyrocket 2,560% just in the past five years (as of March 31), turning a small $38,000 initial capital outlay into a seven-figure sum today.
However, the journey has been full of volatility, as this consumer discretionary stock trades an alarming 62% off its all-time high, although it has shown signs of life in the past several weeks. Opportunistic investors are certainly eyeing the business while it’s on the dip.
Looking out over the next five years, does Celsius have what it takes to make prospective investors millionaires?
Falling off a cliff
By positioning its products as being healthier than others on the market, Celsius experienced monster growth. Its sales jumped 18-fold, or 1,705%, between 2019 and 2024, a rate of growth that’s almost impossible to find anywhere else. This was supported by the introduction of new flavors, entering new markets, and broadening distribution capabilities.
To that latter point, Celsius inked a partnership deal with PepsiCo in August 2022. The massive beverage company gave the energy drink business an avenue to reach more consumers, both domestically and internationally, via a distribution arrangement. It could get Celsius products in more places.
At the stock’s peak, it traded at a nosebleed price-to-earnings (P/E) ratio of 124.8. This reflected the irrational optimism the investment community had toward the business. At the 52-week low in February of this year, shares traded at a P/E multiple of 48.6.
The stock price took a huge hit last year because it was revealed that Pepsi had too much product from Celsius on its hands, much more than demand, resulting in an inventory glut. This forced Pepsi to cut back orders. Celsius revenue tanked 31% in Q3 last year, then fell 4% in the fourth quarter.
Being critical of the Celsius story
Maybe the days of rapid growth are a thing of the past. That’s one reason investors might want to hold back their excitement about this company. In fact, it’s worrying to know that Celsius’ market share of the ready-to-drink energy category declined from 12.3% to 10.9% in the last six months of 2024.
It was announced in February that Celsius had reached an agreement to acquire Alani Nu for $1.8 billion. Alani Nu, which targets a female demographic, is the fourth-largest domestic energy drink brand and has posted 50% annualized revenue growth since 2022.
I think this deal has valid arguments on both sides. On the one hand, acquisitions aren’t uncommon in the beverage sector. These transactions support entering new product or market niches by broadening the acquirer’s capabilities. What’s more, the leadership teams probably decided that buying the target was a better move than trying to build these products internally.
In this instance, though, perhaps it means Celsius is struggling to drive more organic growth, which would be troubling. There is also integration risk, the possibility of overestimating cost synergies, and the chance that existing customers feel alienated if management adopts a new strategic direction.
What if Celsius’ leadership team simply used that $1.8 billion to instead repurchase the company’s outstanding shares while they’re trading well below their peak? Maybe investors would’ve liked this move better.
High-risk, high-reward
At the current P/E ratio of 82.8, the stock isn’t cheap. Only those investors with a higher risk tolerance and bullishness around Celsius’ trajectory, particularly following the Alani Nu purchase, might buy shares.
But it’s silly to think that the business can make you a millionaire in five years’ time. Returns going forward are not going to resemble the past. And it’s difficult to say if the stock can get you in the seven-figure club, ever.
Investors should always remember that owning a diversified portfolio is the right action. Hoping that a single company can generate large sums of wealth is the wrong way to think about things.
Neil Patel and his clients have no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Celsius. The Motley Fool has a disclosure policy.
