Why I bought Celsius Holdings stock

Celsius Holdings‘ (CELH -0.12%) Looking at its financial performance over the past few years, you might think the entire company is drinking a lot of its energy drink products. Over the past five years, sales have increased significantly, reaching nearly $1.15 billion in the last reported 12 months, an increase of almost 2,000%.

Although the knowledge we have today about liquid chemical formulations is probably not that good for us, the global energy drinks market is still a growing market that is expected to significantly outpace economic expansion. This is due to the constant “innovation” of flavors and ingredients. (I’m drinking now coca cola (KO 0.08%) “Made with AI” — such are the times we live in!) We young consumers like variety and change.

However, energy drinks are a fiercely competitive field, with major companies Red Bull and monster beverage (MNST 0.33%). There are several oddities in the history of Celsius that have questioned whether its grand rise was even possible. I myself was wondering if this situation would continue, and recently purchased a small starter position. Here’s why:

Consumer goods are not typical for me

In addition to the long-term growth trend toward energy drinks and caffeinated beverages, there’s another simple reason I wanted to buy a little Celsior.After retention disney (DIS 0.09%) For over 10 years (back then, being young and just a geek, I was excited about the company launching a new era) Star Wars), it’s time to say goodbye.

I recently sold all my Disney stock. Despite being such an old stock in my portfolio, it performed badly. This is an exit I’ve been planning for over a year, and Celsius is just one of the consumer stocks I decided to buy as a replacement.

Consumer goods don’t completely dominate my attention these days. With the focus on semiconductors and accelerated computing, I chose “Coke AI” as my afternoon diversion. So it’s time to brush up on Celsius’ history once again.

The last time I took a close look was in 2022. pepsico (PEP 0.80%) Pepsi invested in Celsius in exchange for becoming its U.S. distribution partner, receiving a $550 million investment in new convertible preferred stock with an annual dividend of 5%. We, the general shareholders, cannot receive such dividends from Celsius. At the time, Pepsi appeared to have a deal in place to scoop up most of the profits from future Celsius growth.

Now, what I do know is that marketing popular consumer brands is important, but the food and beverage industry is also heavily dominated by large distributors. After all, Monster’s huge success (including changing its name from Hansen Natural to Monster in 2012) is at least partly due to its distribution partnership with giant Coca-Cola. But I wasn’t thrilled about Celsius’ deal with Pepsi in exchange for a large chunk of its stock. I was wrong.

Celsius finds a new gear

PepsiCo’s entry into distribution worked wonders for Celsius. Pepsi accounted for nearly 61% of Celsius’ distribution in the first nine months of 2023 (compared to 12% in the comparable period of 2022). Sales skyrocketed and profits began to rise. Earnings per share and free cash flow per share were subdued at best, as the Pepsi contract may be starting to pick up.

Data by YCharts. EPS = Earnings per share. TTM = trailing 12 months.

In addition, Celsius has entered into new distribution agreements overseas, and its entry into the global energy drinks market is still in its infancy. Admittedly, managing this expansion will be costly. But if the management team (including a new CFO, who was brought in in 2022 after some previous accounting question marks) performs well, Celsius could see further sales growth in the coming years.

GAAP net income for the first nine months of 2023 was $143 million, up from a loss of $171 million in the year-ago period.I want to see more of it make a profit If growth continues, I’ll be buying more Celsius stock.

To be sure, this is an “expensive” stock at more than 40 times expected earnings per share one year from now. A lot is riding on Celsius, which continues to expand at a voracious pace. (The Wall Street analyst expects 2023 revenue to double, and in 2024 he predicts sales will rise nearly 40%.)

this is why i started small If your story remains vibrant, plan to make it even bigger over time. But after sitting on the sidelines for a while, Celsius seemed like a good place to stash long-term money in the consumer brands space. Time will tell.