Celsius ($CELH) – Nielsen Data – August 10, 2024
Nielsen data is pointing to more (expected) slowing for Celsius. For the 4 weeks ending July 13th, volume rose 18% Y/Y. This compares to 22% Y/Y volume growth for the 4 weeks ending June 29th. As Monster made clear this week, sector growth is very challenged and Celsius is not immune. Pepsi inventory resets could continue, Red Bull launches have been very strong and delayed inventory resets hurt this market share taker more than either of the big boys. I say all of this to acknowledge what we all already know: The energy drink sector is going through a rough patch.
Things will not turnaround overnight. Bank of America downgraded it this week because it sees no meaningful recovery until next summer. Celsius does have marketing programs in place to reignite growth in the back half of the year, but comps do remain difficult through the end of the year. Furthermore, energy drink brands frequently come and go. Celsius has stormed onto the scene more meaningfully than any of the other disruptors, but fizzling out isn’t impossible. Perhaps Pepsi truly did pull forward several years of growth. I don’t think that’s the case (this isn’t telehealth amid a pandemic) but it’s possible. Consumer brands are volatile.
Regardless of this risk, I have built a small stake in the position recently and I have no interest in liquidation. This is falling into meaningful volume support, the next-12 month earnings multiple is around 35x, and EPS growth for the next two years should safely compound at 25%. Market share gains over the last few years have been extremely impressive and international expansion is off to a good start. As the sector backdrop brightens, I think there’s real upside to estimates – just like when the sector was rocking, estimates were far too aggressive. This company continues to take share on a Y/Y basis, address modest monthly share declines due to Red Bull one-off launches and power the entire category’s growth. For now, I’ve built this position as large as I want it to be. I like the idea of letting them prove that programs will actually work and letting this grow naturally into a core holding. For now, small is preferred.
