1 Super Growth Stock Down 65% to Buy Hand Over Fist This Month
The stock market zoomed to new all-time highs in September, but some recent top performers didn't join the party. In fact, outside of the artificial intelligence (AI)-related companies, many stocks are down so far this year. Celsius (NASDAQ: CELH) is one of these recent investor favorites taking a beating in 2024. While the S&P 500 hits new highs, Celsius stock is down over 67% from its all-time highs set in mid-May.
Why? Because many investors are looking at short-term headwinds affecting revenue growth for the upstart energy drink brand. While the steep stock price drop is definitely worrying for some investors, it might also provide a buying opportunity for those who ignore the short-term noise and are focused on the long term.
Here's why Celsius stock is a can't-miss buying opportunity in October.
Slowing category, inventory depletion
Let's look at why Celsius shares have fallen so precipitously this year.
First, the entire energy drink category hit a slowdown this summer in the United States. According to Monster Beverage -- one of the leading energy drink brands -- traffic to convenience stores fell last quarter, which affected energy drink sales. Convenience stores are one of the main selling channels for Celsius energy drinks, so this affected sales.
Second, Celsius made a deal two years ago with PepsiCo that makes PepsiCo the brand's main distributor in retail locations in the United States. In the deal's first year, PepsiCo loaded up on Celsius inventory to make sure its warehouses and retail outlets were fully stocked for the fast-selling product. This caused Celsius revenue to accelerate to 100% growth year over year.
Now, in the second year, PepsiCo is normalizing inventory to optimize cash flow, which led to a drop in revenue growth. Last quarter, year-over-year revenue growth slowed to just 23%. Investors are concerned about this slowdown, which is why Celsius stock tanked this year.
Long-term market share gains, international expansion
Category growth is something to watch, but the long-term trends show energy drinks taking share from the likes of soda, orange juice, and sports drinks. Within the energy drink category, Celsius keeps gaining market share from existing competitors such as Monster Beverage. Last quarter, the company had around 12% market share across in-person and online retail in the U.S., according to industry estimates. At the beginning of 2023, this share was just 7%. These continued market share gains should help revenue climb higher in the coming years.
Outside the U.S., Celsius is a small player in the energy drink category, with international making up less than 10% of its consolidated sales. Management plans to change this in the next few years. It has entered the markets in Australia, New Zealand, the United Kingdom, and France in earnest and wants to run the same playbook for growth that it used in the U.S. If this is successful, it will be another tailwind for revenue growth.
Why Celsius stock is a buy in October
After its big drawdown, Celsius' price-to-earnings ratio (P/E) has fallen to 31. This is not a cheap multiple, but it can come down quickly if revenue keeps growing at a double-digit rate after the PepsiCo inventory situation is resolved. Opportunities abound for Celsius to steal more market share in the United States and grow internationally.
Profit margins have climbed higher in recent years, hitting 22.5% over the last 12 months. As growth slows down, the operating margin should expand to an even higher level, which will help earnings grow (and the P/E to fall).
At the start of this year, Celsius stock looked expensive with a P/E close to 100. Today -- after its 65% drawdown -- the fast-growing brand looks like a steal at a P/E of 31. Buy this stock in October and watch the gains roll in over the next five to 10 years.
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Brett Schafer has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Celsius and Monster Beverage. The Motley Fool has a disclosure policy.
1 Super Growth Stock Down 65% to Buy Hand Over Fist This Month was originally published by The Motley Fool