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Celsius: Plenty Of Room For Growth, But Valuation Looks Expensive

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CELSIUS Arctic Vibe Launch Party

Aaron Davidson

Shares successful Celsius (NASDAQ:CELH) person risen by much than 70% successful nan past year. This is simply a really large move up, but judge me, it's rather justified. Because what nan guidance of nan institution has demonstrated complete nan past twelvemonth is really astonishing and it's thing that each investor wants to see. The company's revenues, successful 2022, arsenic estimated grew by much than 100%. That's really accelerated growth. But what discourages me, from buying a company, is nan existent valuation. It is presently rather a spot higher than what I would beryllium consenting to bargain nan institution for astatine nan moment. But that doesn't mean nan institution now can't beryllium charismatic to definite investors. Each has a different portfolio and a different consequence tolerance. If nan company's shares were to autumn successful immoderate important way, without a alteration successful nan company's fundamentals, I would decidedly commencement earnestly considering buying.

What is Celsius?

Celsius Holdings Inc. was founded successful 2004. The CEO of nan institution is John Fieldly. He joined nan institution successful 2012 and served arsenic CFO. He became CEO successful 2018. He's done a awesome occupation since then. He has decades of acquisition and has proven to beryllium a CEO who has a semipermanent mindset and vision, which is thing I personally americium very happy to see.

CELH is simply a institution that produces and sells power drinks. But nan institution does not waste normal power drinks. Their power drinks are composed of ingredients specified arsenic greenish beverage extract, ginger, caffeine, and vitamins. They're a batch healthier than different power drinks, which incorporate a batch of sweetener and calories.

In addition, respective studies person confirmed that Celsius power drinks summation metabolism and tense strategy activity. This results successful your assemblage burning much calories and assemblage fat than you would usually pain during workout alone. This is simply a immense use that drinking an power portion from Celsius brings.

Drinks are besides disposable successful a assortment of flavors, specified arsenic Strawberry Guava, Watermelon, Orange, Grape Juice, and galore more. CELH besides produces macromolecule bars. But nan main attraction of nan institution is power drinks.

celsius drinks

Celsius Q3 2022 Investor Presentation

Why I Love The Partnership With Pepsi

In August 2022, PepsiCo (PEP) announced a $550 cardinal investment successful Celsia Holdings arsenic portion of a semipermanent distribution woody pinch nan company. This gave Pepsi an 8.5% liking successful Celsius. This business has been a really awesome move by CELH guidance arsenic it will bring them a batch of benefits.

The first, of course, is nan truth that nan institution will beryllium wholly good financially because it will person a really beardown equilibrium sheet. They'll usage that $550 cardinal to make different investments successful maturation and possibly moreover immoderate strategical acquisitions. Pepsi has 1 of nan apical distribution networks successful nan full US. It is truthful bully to spot that CELH will beryllium capable to usage this distribution network. What galore group don't get is nan truth that Pepsi has a awesome distribution web astir nan world. Pepsi will besides go nan main world supplier for CELH.

With Pepsi making an finance successful Celsius, they will attraction astir nan company's success, which I'm gladsome to see. In my opinion, this woody could thief summation CELH's margins, since distribution, will beryllium a batch much efficient. Chief Strategy & Transformation Officer of Pepsi John Lee, joined nan CELH committee of directors, pursuing nan announcement of nan partnership. He spent astir of his profession managing world income for Pepsi successful Russia, Europe, Asia, and Australia.

These regions will beryllium beautiful overmuch nan attraction of nan institution successful nan early and it is bully to spot that it has personification connected nan committee who has a successful acquisition pinch globalization. Personally, this business strikes maine arsenic a very smart move that will bring sizeable benefits to some sides.

Celsius/PepsiCo presentation

Celsius/PepsiCo presentation

The Competitive Advantage

But what competitory advantage does Celsius have? Isn't it different mean institution that makes normal power drinks? As you whitethorn already suspect, it is not. CELH differs from its title successful respective ways. The first is nan truth that Celsius power drinks are a batch healthier than normal power drinks from, say, Monster (MNST) aliases Red Bull. At nan aforesaid time, nan drinks of CELH person almost nan aforesaid effect successful position of expanding energy. In addition, it is scientifically proven that nan company's drinks velocity up metabolism and makes nan personification pain much calories.

The value of a CELH beverage, it's very akin to different competitors. The institution has a awesome distributor-Pepsi. Celsius tin beryllium recovered successful galore retailers including Target (TGT), Costco (COST), Walmart (WMT), CVS, Vitamin Shoppe, and thousands of others. Overall, personally, I spot almost nary logic why customers should portion immoderate power portion different than nan 1 from CELH. Celsius drinks are a batch healthier, they accelerate metabolism, they sensation delicious, and they costs almost nan same. Energy drinks from Celsius are really nan champion choice. The only point anyone could reason is that he doesn't for illustration their taste, but he likes nan sensation of nan drinks of nan competition. Of course, that tin happen. But it surely doesn't hap often.

The main logic customers thin not to portion Celsius drinks, but to portion title drinks is that they haven't tried CELH drinks. The institution simply has to support moving to bring nan competition's customers to effort CELH drinks, because astir of nan time, erstwhile customers effort a Celsius drink, it doesn't spell backmost to nan title very often.

Overall, successful my opinion, nan competitory advantage of Celsius is that their drinks are healthier, bring nan aforesaid efficiency, sensation good, and are worthy almost arsenic overmuch arsenic nan ones of nan competition. The guidance of nan institution past does a awesome occupation successful position of entering into partnerships.

The Growth Of Celsius

The institution is expected to turn income by 108% successful 2022. That would beryllium impossibly accelerated maturation for immoderate package companies, but considering nan truth that Celsius sells power drinks, it's moreover much remarkable. The institution has grown astatine a very accelerated gait complete nan past fewer years and this accelerated maturation is expected to proceed successful nan coming years. CELH grew this accelerated because of respective factors.

The first is that nan institution is already astatine 174,000, US shop locations successful Q3 2022. In Q3 2021, nan institution was successful 114,000, US shop locations. That's much than 50% YoY growth. That's very singular indeed. You tin judge for yourself present nan activity nan activity is doing. Great, successful my opinion.

The institution presently has 15 main flavors. This allows nan customer to effort respective options and past take nan 1 that suits them best. Issuing caller flavors has decidedly helped nan institution turn and CELH will surely proceed to merchandise caller flavors, which will support further growth. In early 2021, nan institution began implementing a strategy of placement of branded coolers. These coolers summation marque consciousness of nan institution and besides nan drinks are iced, which customers love, truthful it invites them to buy. Since nan opening of 2021, nan institution has already placed much than 3,500 coolers. The institution expects to proceed to spot different coolers successful 2023.

On Amazon (AMZN), Celsius is nan 2nd largest power portion pinch an 18.51% share of nan power portion category, up of Red Bull pinch a 12.01% stock and down Monster pinch a 26.22% share. The truth that Celsius is nan 2nd largest power portion connected Amazon is very good, successful my opinion, considering nan truth that nan institution is overmuch smaller than Red Bull aliases Monster. As for Celsius' wide stock of nan power portion marketplace successful nan US, CELH is 3rd pinch a 4.9% marketplace share. There is surely plentifulness much room for maturation here.

The institution will besides attraction connected globalization. That's thing they haven't done each that good successful caller years, but I deliberation because of nan business pinch Pepsi, this will alteration and Celsius will dispersed quickly astir nan world. Overall, I deliberation CELH still has plentifulness of room for growth.

Celsius income growth

Celsius Q3 2022 Investor Presentation

Financials

Now let's look astatine nan financials of nan company. In Q3 2022, nan institution had income of $188 million, a maturation of 98.3% YoY. Very accelerated maturation indeed. Gross margins were 41.8% this quarter. However, nan institution had a nonaccomplishment of -$181 million. But that's only because they had to salary $155 cardinal successful "termination fees" to their erstwhile distribution partners. But they besides stated that Pepsi would reimburse them for nan long of their 20-year distribution agreement.

The institution presently has $726 cardinal successful cash. This large rate position is acknowledgment to nan $550 cardinal finance from Pepsi. CELH has $1.027 cardinal successful full existent assets and $1.327 cardinal successful full assets. They person only $271 cardinal successful full existent liabilities. They person nary semipermanent debt. And they person $443 cardinal successful full liabilities.

That intends if guidance wanted to, they could repay each nan liabilities tomorrow and still person $283 cardinal successful rate left. Celsius conscionable has a very strong equilibrium sheet. That's thing I'm very happy to see.

Valuation

I would now for illustration to attraction connected nan valuation of CELH. The institution presently trades astatine Price/Sales of 13x. Price/Book of nan institution is now 8.34x. Price/Cash Flow is 58x. Celsius is simply presently not trading cheaply astatine all.

The institution is trading astatine specified a precocious valuation owed to nan truth that it is expected to proceed to turn very quickly successful nan future, nan guidance is doing a awesome job, making strategical partnerships, and nan equilibrium expanse of nan institution is very strong. In 2023, income are expected to turn by 52.4% to $998 million. If nan institution grows this fast, past it's nary wonderment it's trading for specified a valuation.

Even so, nan existent valuation is excessively precocious for maine to see buying nan stock. Some investors whitethorn find this valuation okay, fixed nan company's fundamentals, and I don't conflict that position astatine all, but everyone has their ain consequence tolerance. Personally, I'd commencement reasoning earnestly astir buying CELH, location astir $60. But if nan fundamentals of nan institution alteration for nan better, it is imaginable that I whitethorn beryllium consenting to bargain Celsius contempt a higher valuation. Now, however, I will only show nan institution successful nan adjacent future.

ChartData by YCharts

Risks

Celsius, successful my opinion, presently has 2 main risks. The first is simply a batch of title successful nan energy portion market. While I deliberation CELH has a overmuch amended merchandise than nan competition, there's still a chance that guidance won't beryllium capable to get their merchandise done enough, and truthful nan institution won't beryllium successful. However, this is simply a very low-probability script indeed. Still, it needs to beryllium kept successful mind and observed that guidance continues to conflict nan title and proceed to triumph this fight.

As an added risk, there's nan company's valuation arsenic already mentioned. This is, successful my opinion, presently excessively high, and if, for example, CELH misses earnings, location is simply a existent chance that nan shares whitethorn autumn rather significantly. That's precisely why I'd for illustration to hold for a dip because that's wherever nan consequence gets a batch smaller and nan imaginable return gets bigger. These, successful my view, are presently nan 2 main risks to carnivore successful mind.

Conclusion

Celsius is simply a awesome business. The institution has grown astatine a very accelerated gait successful nan past fewer years. This accelerated maturation is expected to proceed successful nan future. The equilibrium expanse of nan institution is very strong.

Partnership pinch Pepsi, successful my opinion, was a awesome move by nan management. I really respect what guidance has done pinch nan institution complete nan past fewer years. I would for illustration to bargain CELH, but nan existent value is simply excessively precocious for me.

Valuation is really nan only logic I don't ain CELH. But I wouldn't beryllium amazed if nan banal multiplies complete nan adjacent fewer years contempt this valuation. It is decidedly possible. For maine personally, fixed my existent portfolio and consequence tolerance, buying CELH correct now doesn't make sense. However, I will beryllium keeping a adjacent oculus connected nan institution successful nan adjacent early and if nan value goes down, I will beryllium very happy to adhd it to my portfolio.

This article was written by

The Rare Opportunities floor plan picture

I americium a semipermanent investor, focused connected uncommon opportunities successful nan market, that others overlook.

Disclosure: I/we person nary stock, action aliases akin derivative position successful immoderate of nan companies mentioned, and nary plans to initiate immoderate specified positions wrong nan adjacent 72 hours. I wrote this article myself, and it expresses my ain opinions. I americium not receiving compensation for it (other than from Seeking Alpha). I person nary business narration pinch immoderate institution whose banal is mentioned successful this article.

Editor: Naga



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