Celsius Holdings, Inc. (CELH) combines nutritional science with mainstream beverages to develop, process, market, distribute, and sell functional drinks and liquid supplements to a more diverse segment of consumers that has remained unserved by legacy energy drinks.

The company's core offerings include pre- and post-workout functional energy drinks, including its flagship brand CELSIUS, a calorie-burning functional energy drink. It sells protein bars as well.

CELH, led by John Fieldly, is being credited with opening up an entirely new and broader market segment of consumers up to 44 years of age by combining nutrition with function and flavor.

In a major partnership deal with  PepsiCo, Inc. (PEP) announced in August, CELH has been able to access the beverage giant’s distribution network in exchange for a stake in the company.

As a result of these developments, CELH has witnessed an uptrend, hitting its record high of $122.24 earlier this month. The stock has gained 62.6% over the past six months to close the last trading session at $104.88, above its 50-day and 200-day moving averages of $99.85 and $81.72, respectively.

Here we look into the factors that could influence CELH’s performance in the upcoming months.

Dismal Financial Performance

During the third quarter of the fiscal, ended September 30, 2022, CELH’s loss from operations widened 1703.3% year-over-year to $147.60 million, while its net loss widened 1,841.1% year-over-year to $186.49 million. As a result, the company’s loss per share also worsened 1792.3% year-over-year to $2.46.

CELH’s total liabilities stood at $443.71 million as of September 30, 2022, compared to $96.97 million as of December 31, 2021.

Poor Profitability

CELH has trailing 12-month EBITDA and net income margins of negative 20.80% and negative 26.58%, compared to the industry averages of 11.59% and 4.16%, respectively.

In terms of the trailing 12-month ROCE, ROTC, and ROTA, CELH also significantly underperforms relative to the industry averages of 10.59%, 6.17%, and 3.73%, respectively.

Stretched Valuation

In terms of forward EV/Sales, CELH is currently trading at 12.25x, 632.2% higher than the industry average of 1.67x. Its forward EV/EBITDA multiple of 99.30 is 770.21% higher than the industry average of 11.41.

In addition, its forward Price/Sales ratio of 12.10 is substantially higher than the industry average of 1.12. The stock’s exorbitant valuation is also reflected in its forward Price/Book multiple of 114.05, compared to the industry average of 3.

Unfavorable Analyst Estimates

Analysts expect CELH to report a loss of $1.96 per share for the fiscal year 2022, compared to an EPS of $0.05 during the previous fiscal. Moreover, the company has missed its consensus EPS estimates in four of the trailing five fiscals.

POWR Ratings Reflect Weakness

CELH has an overall D rating, which equates to a Sell in our proprietary POWR Ratings system. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight different categories. CELH has an F grade for Value and Stability, in sync with its stretched valuation and beta of 1.87.

CELH also has a D grade for Sentiment in concurrence with the unfavorable analyst estimates. It is ranked #32 of 35 stocks in the Beverages industry.

Beyond what has been discussed above, additional ratings for the Growth, Momentum, and Quality of CELH can be found here.

Bottom Line

CELH has the first-mover advantage in its segments. Given the other tailwinds, its near-term prospects as a business seem bright.

However, in the larger beverage industry dominated by established players, the company is yet to gain an enduring competitive advantage that can help protect its consumer base and margins.

In addition, given its frothy valuation and absence of consistent profitability, we believe it would be wise to learn from Tesla Inc.’s (TSLA) recent price correction and avoid the stock for now.

How does Celsius Holdings, Inc. (CELH) Stack Up Against its Peers?

CELH has an overall POWR Rating of D, which equates to a Sell, in the A-rated Beverages industry. Hence, you might consider looking at its industry peers, Kirin Holdings Company, Limited (KNBWY), Suntory Beverage & Food Limited (STBFY), and Primo Water Corporation (PRMW) with an A (Strong Buy) rating.

CELH shares were trading at $102.87 per share on Friday afternoon, down $0.52 (-0.50%). Year-to-date, CELH has gained 37.95%, versus a -18.94% rise in the benchmark S&P 500 index during the same period.

Having been fascinated by the traditional and evolving factors that affect investment decisions, Santanu decided to pursue a career as an investment analyst. Prior to his switch to investment research, he was a process associate at Cognizant. With a master's degree in business administration and a fundamental approach to analyzing businesses, he aims to help retail investors identify the best long-term investment opportunities.

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