Can Health Drink Maker Celsius Outrun Its Monster Rival?

September 14, 2022 at 06:05 AM EDT

Mid-cap energy drink maker Celsius Holdings (NASDAQ: CELH) has been trading in a sideways pattern without gaining any lift since its earnings report on August 9.

The company’s proprietary MetaPlus formula is designed to turn on thermogenesis, a process that boosts the body's metabolic rate. The formula contains a blend of ginger root, guarana seed extract, chromium, vitamins, and green tea extract, with a compound that boosts metabolism.

According to company literature, “When combined with exercise, Celsius helps your body burn more calories and body fat which has been clinically proven in 6 published university studies.”

Sip a beverage and lose weight? Sounds pretty good. Apparently, that’s exactly how consumers feel. Sales have grown at the double- and triple-digit rates in each of the past eight quarters. That’s translated to triple-digit earnings growth in the past three quarters.

Prior to the company’s earnings report, Celsius struck a distribution deal with PepsiCo (NASDAQ: PEP).

The agreement initially transitioned Celsius’ current U.S. distribution to PepsiCo’s system. PepsiCo will also make an investment in Celsius in support of its growth and will nominate a director to serve on Celsius’ board.

The long-term U.S. distribution agreement took effect on August 1.

PepsiCo will make a net cash investment of $550 million to Celsius in exchange for convertible preferred stock. The stock underlying the transaction was priced at $75 per share, which equates to an estimated 8.5% ownership in Celsius.

Celsius is outperforming its much bigger publicly-traded energy drink rival Monster Beverage (NASDAQ: MNST).

Here are returns for the two companies over recent time frames:

Celsius:

1-Month: -5.10%

3-Month: +82.75%

Year-to-date: +33.83%

In comparison, here’s how Monster has done:

1-Month: -0.54%

3-Month: +5.97%

Year-to-date: -6.78%

There is a difference in how the two firms market their drinks. As you read above, Celsius focuses on the health and fitness aspects of its sugar-free drinks.

Monster, on the other hand, emphasizes the lifestyle brand aspects. Its Web site copy reads, “Tear into a can of the meanest energy drink on the planet, Monster Energy. It's the ideal combo of the right ingredients in the right proportion to deliver the big bad buzz that only Monster can.”

Mature Companies Have Slower Growth

Monster’s revenue has been growing, but at lower rates than Celsius. However, that’s to be expected with a larger, more mature company.

Monster went public in 1985 and was originally juice maker Hansen’s. It re-christened itself Monster in 2012. Its market cap stands at $47.42 billion.

Celsius’ IPO was in 2017. Its market cap is $7.548 billion. A company of that size can often be much more nimble than a larger firm and often grows faster.

It’s true that Celsius may seem like it’s priced to perfection at this point, with a P/E ratio of 447. In fact, it’s actually been higher, with a five-year P/E range between 18 and 2204.

According to MarketBeat analyst data, the consensus rating is “moderate buy,” with a price target of $101.88, which is only a 2.08% upside.

Now, a 2.08% upside is nothing to sneer about, and every investor or trader would take that. However, would that come at the expense of another stock whose outlook and expected earnings show higher potential?

It’s always crucial to understand the opportunity cost inherent in any investment. For example, despite its more tepid growth, and complete lack of earnings growth in three of the past four quarters, Monster has a higher projected upside. Analysts are eyeing a potential share price appreciation of 13.26% to $101.40.

Should You Own Celsius?

But you also have to ask yourself if energy or health drinks even belong in your portfolio.

It’s important to diversify, but that doesn’t mean taking a flyer on a stock simply because it seems cool or interesting. If you have a conviction that a corporate event such as Celsius’ partnership with PepsiCo could substantially increase sales, then perhaps the stock is worth a look. But as always, understand why any particular security is part of your portfolio, and be willing to cut it loose when you’ve reached your own price target or if it fails to live up to its potential.
Can Health Drink Maker Celsius Outrun Its Monster Rival?

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Can Health Drink Maker Celsius Outrun Its Monster Rival?

Mature Companies Have Slower Growth

Should You Own Celsius?

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