Shares of Celsius Holdings Inc. (NASDAQ: CELH) are down by as much as 5% in Tuesday’s trading session, a reaction that came after the company reported its first quarter 2024 earnings results. Arguably the most important earnings announcement, as the first quarter sets the tone for the rest of the year, investors should not get the wrong picture after this dip.
The company’s financials indicate the stock should be moving in the opposite direction after earnings. Still, fundamentals without attention aren’t worth much. Because of this, investors should – and will – check how markets feel about the stock’s future relative to its peers in the consumer discretionary sector.
Pinned against competitors like Monster Beverage Co. (NASDAQ: MNST) and Coca-Cola Co. (NYSE: KO), Celsius quickly becomes a positive outlier, bringing investors another potential run higher this quarter. It's a morning dip that could be better than coffee, and here's the discount it brings with it.
A Sound Way to Navigate Today’s Environment
As the U.S. economy comes into one of its most uncertain moments in the past cycle, investors are growing anxious about where their money should be put to work. As it turns out, both the ISM Manufacturing PMI Index and the ISM Services PMI Index have contracted in the past month.
Because these two sectors drive the economy’s gross domestic product (GDP), a mutual contraction could spell bad news for the stock market. However, not all stocks are created equal.
In the middle of this uncertainty, investors could look to stocks that are growing at double-digit rates this year, so their investments will preserve the best of the economy and leave out most of the concerns.
And Celsius Fits the Profile
Management leads the way within the company’s press release. With its 37% annual revenue growth, Celsius begins to fit the profile of high growth at an attractive discount. The stock’s discount comes through the only metric that matters to investors: price action. Now trading at 77% of its 52-week high, Celsius stock has a path to make a potential catch-up in the coming months.
Typically, stock prices are driven by earnings per share (EPS) growth and how markets value these future earnings today. During the past 12 months, Celsius reported 108% growth in EPS, making another check for its future potential upside. Monetizing the rear-view mirror can be difficult, so Celsius's EPS is expected to go here. Analysts now project 40.4% EPS growth for the year, beating Coca-Cola's 7.1% and Monster Energy's 13.4%.
Despite its recent dip, Celsius stock outperformed the Consumer Discretionary Select Sector SPDR Fund (NYSEARCA: XLY) and the S&P 500 by as much as 35% over the past quarter.
Because of this superior growth, markets are willing to pay a premium valuation for these future earnings, which is what investors want to see. Trading at a forward P/E ratio of 50.6x puts Celsius above Monster’s 26.7x and Coca-Cola’s 20.8x, a premium of up to 143%.
Overpaying for a stock should carry a justifiable reason, and Celsius’ growing market share may be one of them. Taking up to 11.5% market share (according to management) in the energy drink category and delivering record first-quarter revenue is pushing Wall Street closer to the stock.
The Analysts' Take
Analysts at Maxim Group now see Celsius going as high as $110 a share. The stock would need to rally by 46% to prove these valuations right, a potential that towers Monster’s 13.1% upside through its $61.3 price target. Coca-Cola isn’t known for its aggressive growth but for its stability and dividends. This is why analysts see only a 9.5% upside in the stock’s $68.3 price target, supported by its 3.1% dividend yield today.
Here is where investors need to make a choice: Stay with a steady stream of dividend income through Coca-Cola stock, or take on a bit more risk and have access to Celsius’ double-digit potential upside?
Bank of New York Mellon chose the latter. Among the $2.5 billion of institutional investment flowing into Celsius, BNY now represents $178.5 million after boosting its stake by 15.2% as of April 2024.
Leaning on bullish momentum and price action, investors can add another vote of confidence from the markets to push the company’s fundamentals, particularly after a blowout first quarter, setting the tone for the rest of the year.
