Celsius (CELH) gets oversold ahead of earnings: buy or sell?

Celsius Holdings (CELH) stock price has moved from one of the best-performing companies in the United States to one of the worst. The CELH share price has plunged by about 60% from its highest point this year. It slumped to its lowest point since May 2023, moving its market cap from over $23.6 billion to $8.9 billion, meaning that holders have shed over $14.7 billion.

Celsius Holdings has grown rapidly

Celsius, a leading manufacturer of energy drinks, has become the fastest-growing company in the beverage industry. Its drinks have gone viral, helping its annual sales jump from over $75.1 million in 2019 to over $1.38 billion in 2023. 

This growth accelerated after the company reached a deal with PepsiCo, the second-biggest energy drinks company in the world. Pepsi invested $550 million in Celsius and received the distribution rights for the drinks.

This is a win-win situation for Celsius and Pepsi. Celsius leveraged Pepsi’s wide distributions while Pepsi received a drink whose growth will mirrors Monster Beverage’s deal with Coca-Cola. That deal has turned Monster into the second-biggest company in the industry after Red Bull.

Concerns that this growth is slowing

The CELH stock price has tumbled as concerns emerged that the company’s growth was slowing. Recent data shows that search interest about Celsius Holdings and its drinks have dropped sharply in the past few months.

There are also concerns that the recent data by Nielsen showed that this growth is moderating. The most recent data showed that the company added its market share with a 15.2% increase. While this is a good metric, it was mostly because of its increased promotions. 

Therefore, Tuesday will be an important day for the company as it will publish its financial results. 

In the first quarter, the company said that its revenue rose by 37% in Q1 to over $355.7 million while its gross profit jumped by 605 to over $182.2 million. While this revenue growth was encouraging, it was much lower than what the company used to make in 2023. Its profits have also risen in the past few months. Gross margins rose by 740 basis points to 51.2%. 

Most importantly, there are signs that Celsius Holding’s international business is picking up steam, helped by its partnership with Pepsi. Its international revenue rose by 43% in the first quarter to $16.2 million. 

This division’s revenue came from Canada, UK, and Australia. It ends to expand its business to Australia, New Zealand, and France later this year. Based on its growth in the US, there are chances that it will become a highly growing company in these countries.

The average estimate is that Celsius Holding’s revenue rose by 20% in the first quarter to $393 million. If this number is accurate, it will confirm that the era of strong growth is ending. In the past, however, Celsius Holdings has managed to beat analyst estimates. 

For the third quarter, analysts expect that its revenue will be $460 million, a 19% increase from the same quarter in 2023. Also, for the year, analysts expect that its revenue will be $1.65 billion, a 25% increase from 2023.

Celsius Holding’s earnings per share will come in at 24 cents, higher than the 17 cents it made in the same period in 2023.  

Celsius valuation metrics

The ongoing Celsius Holdings stock crash has led to an improved valuation. The company’s market cap has dropped to $8.9 billion, which is reasonable for a company that has room to grow its margins.

Monster Beverage has a gross profit margin of 53.4% and a net income margin of 22.8% while Celsius has 49% and 18%, respectively. This valuation gap is understandable since Monster is a more mature company than Celsius. 

Celsius will continue growing its margins when it moves from growth at all costs to profitability. Monster has a GAAP PE ratio of 32 and a forward multiple of 29 while Celsius has 46 and 40, respectively.

Celsius can justify this valuation since it is growing at a faster rate than Monster. It also has a bigger addressable market since it is not available in most countries so far. 

Celsius stock price analysis

CELH chart by TradingView

I predicted the ongoing Celsius Holdings share price sell-off, citing its double-top chart pattern at $98.72 and the eventual drop below its neckline at $67.40. In most cases, a double-top pattern leads to more downside. 

The stock also formed a death cross pattern on July 17th as the 200-day and 50-day Exponential Moving Averages (EMA) crossed each other. This is one of the most bearish patterns in the financial market. 

On the positive side, the stock has gotten oversold, meaning that it could bounce back when it releases its results on Tuesday. If this happens, the CELH share price will likely rise to the key resistance at $50.

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