Celsius Holdings (NASDAQ: CELH) has been a terrific growth stock to own over the past decade as both its top and bottom lines have soared. But this year has been a nightmare for shareholders of the energy drink company. Its growth rate has slowed, and with a concerning outlook ahead, the stock has been in a free fall.
Year to date, shares of Celsius are now down more than 35%. The stock could be headed for its worst year since 2011. Is Celsius in deep trouble, or could this be a great time to invest in the energy drink company?
Celsius stock has normally been a solid investment
Celsius has been one of the best growth stocks to own over the past decade, as it has generated mammoth, life-changing returns for its investors. Here's a breakdown of its annual returns by year.
| Year | Celsius Stock Return |
|---|---|
| 2023 | 57.2% |
| 2022 | 39.5% |
| 2021 | 48.2% |
| 2020 | 941.6% |
| 2019 | 39.2% |
| 2018 | -33.9% |
| 2017 | 114.3% |
| 2016 | 26.3% |
| 2015 | 288% |
| 2014 | 47.1% |
| 2013 | 68.7% |
| 2012 | -4% |
| 2011 | -50% |
Data source: YCharts.
Besides an "off" year in 2018, the stock has fairly consistently generated solid annual returns of at least 20% per year for the past decade. That includes one exceptional year in 2020, when it shot up more than 900%. The problem is that when a stock rallies so much, expectations become inflated, making it difficult for the stock to remain a hot buy with growth investors.
Why is Celsius stock struggling so badly this year?
Celsius' business has achieved some incredible growth over the years as it has established itself as one of the top energy drink companies in North America. But its sales growth rate has been slowing down this year. The company's key distribution partner, PepsiCo, has also decided to reduce its inventory of Celsius products. That's a concerning sign that the growth rate may slow even further in the coming quarters, and that the overall outlook may not be that encouraging, either.
Investors have become accustomed to paying high multiples for Celsius stock in the past, but as its growth prospects have become more concerning, there's less of an appetite to do so. Today, the stock trades at over five times its trailing revenue. That's a big adjustment compared with how highly investors were valuing the stock previously.
CELH PS Ratio data by YCharts.
Through the first half of this year, Celsius has reported revenue totaling $757.7 million, which is up 29% year over year. That's not a bad growth rate by any stretch, but in the past it wasn't uncommon for the company to be doubling its top line. With Celsius perhaps no longer looking like a growth machine, investors have adjusted the premium they're willing to pay for the business.
Is Celsius stock a good contrarian buy today?
Celsius has become profitable of late, and based on analyst expectations of future earnings, it's trading at approximately 32 times next year's profits. That doesn't strike me as an unreasonable multiple for a business that's still growing at a rate of around 30%. And with Celsius in the early stages of its international expansion plans, the business is by no means running out of growth opportunities just yet.
Provided that you're willing to be patient with the company, Celsius stock could make for a great buy right now, as it still has a lot of room to grow over the long haul.
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David Jagielski has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Celsius. The Motley Fool has a disclosure policy.
