Why did I buy Celsius Holdings stock?

Celsius Holdings‘ (CELH -0.12%) Looking at its financial performance over the past few years, you’d think the company as a whole drinks a ton of energy drink products. Over the past five years, there has been tremendous revenue growth, reaching nearly $1.15 billion, up nearly 2,000% in the last 12 months reported.

Despite all we know today about liquid chemical mixtures probably not doing us much good, the global energy drinks market is still a growing market that is expected to significantly outpace economic expansion. This is due to constant “innovation” in flavors and ingredients. (Right now I am drinking a glass of wine. Coca Cola (Watt-hours 0.08%) “made with AI”, this is the era we live in!) Young consumers love our diversity and change.

Nonetheless, energy drinks are a highly competitive sector, with giants Red Bull and monster drink (MNST 0.33%). Celsius has some oddities in its history, and there are many doubts as to whether its massive rise was possible. Despite some doubts that this would continue, I recently purchased a small starter position. Here’s why:

Consumer goods are not my typical cup of tea

Aside from the overall growing trend in favor of energy drinks and caffeinated beverages, there’s another simple reason why I decided to stock up on some Celsius. After holding Disney (DIS 0.09%) For well over a decade now, I’ve been excited about the start of a new era for the company. star Wars) It’s time to part ways.

I recently sold all my Disney stock. For such an old holding in my portfolio, it has underperformed incredibly. This was an exit I had been planning for over a year, and since Celsius is just one of the consumer-facing stocks, I decided to buy it as a replacement.

Consumer goods don’t exactly dominate my attention these days. This is true for semiconductors and accelerated computing. Therefore, I chose “Coke AI” for my afternoon pick-me-up. Now it was time to review the history of Celsius once again.

The last time I looked closely was in 2022, and that was pepsico (prototype 0.80%) Pepsi invested $550 million in new convertible preferred stock that pays a 5% annual dividend. Our common shareholders do not receive any such dividends from Celsius. At the time, it seemed like Pepsi had a deal in place to capture most of the profitability from future Celsius growth.

What I know now is that marketing popular consumer brands is key. However, the food and beverage industry is also largely dominated by large retailers. After all, Monster’s enormous success (including its 2012 name change from “Hansen Natural” to Monster) can be attributed, at least in part, to its distribution partnership with giant Coca-Cola. But Celsius’ deal with Pepsi in exchange for a large stake didn’t excite me. I was wrong.

Celsius Finds Another Equipment

Connecting with PepsiCo’s distribution came as a surprise to Chelsea. Pepsi accounted for almost 61% of Chelsea’s distribution in the first nine months of 2023 (compared to 12% in the comparable period in 2022). Sales soared and profits began to increase. Earnings per share and free cash flow per share were muted at best, as Pepsi’s contract could push it higher.

Data from YCharts. EPS = earnings per share. TTM = Trailing 12 months.

Additionally, Celsius is just beginning to enter the global energy drink market, signing new distribution deals overseas. Obviously, managing this expansion is expensive. However, if management (including a new CFO appointed in 2022 after some accounting problems in previous years) executes well, Chelsea could deliver much more revenue growth in the coming years.

GAAP net income was $143 million through the first nine months of 2023, up from a loss of $171 million a year ago. I want to see more of it. favorable If growth continues and if so I will buy more Celsius stock.

Of course, this is an “expensive” stock, trading at over 40 times expected earnings per share after one year. Millions of people continue to expand at breakneck speeds along the Celsius scale. (Wall Street analysts had forecast 2024 sales growth of nearly 40%, building on a doubling of sales in 2023.)

This is why I started. small If your story remains vibrant, plan to build it bigger over time. But after watching it for a while, Celsius seemed like a good place to secure long-term funding in the consumer brands space. Time will tell.