Can the Current Bull Market Boost Your Wealth to Millionaire Status?
In the hunt for a consumer stock that could potentially make you a millionaire, you might want to consider Celsius Holdings (CELH -4.41%). This is an intriguing choice due to the stellar performance of its rival, Monster Beverage, over the past three decades.
This year hasn't been kind to Celsius, despite a strong market performance. Given the challenges Celsius has faced, could this be an opportunity to get in on a stock with significant long-term potential? Let's delve into whether Celsius has the potential to become the next millionaire-maker energy drink stock.
A potential gold mine
The energy drink market is currently dominated by two entities: Monster Beverage and Red Bull. Within the U.S., Red Bull owns around 35% of the market share, while Monster has over 29%. Remarkably, Celsius has managed to claim the No. 3 spot with a modest 9% share.
Before 2023, Celsius played a crucial role in fueling growth within the energy drink category in the U.S. Its market share skyrocketed from 1% in early 2021 to about 4% by fall 2022, following the signing of a new distribution deal with PepsiCo. This partnership propelled the company's market share all the way up to 9% before the end of 2023.
Celsius' success can be attributed to its ability to draw a diverse demographic, particularly women, to this otherwise male-dominated category. It achieved this through its sleek can design, sugar-free variations, refreshing flavors, and a health-conscious marketing message. As a result, while energy drink consumers tend to be predominantly male, Celsius has successfully secured a 50/50 split between male and female consumers. The beverage has also been marketed for consumption at any time, not just during workouts, while emphasizing its weight-loss benefits.
Although Celsius has continued to thrive, its market share has plateaued at 9% due to its complete distribution within the U.S. This has been partly attributed to general weakness within the larger energy drink category, which can be linked to traffic issues within the convenience store sector. Energy drinks are often impulsive purchases, and poor traffic in this essential channel has negatively impacted overall growth.
It's not surprising that Celsius has also faced heightened competition due to its success. Both Monster and Red Bull have also introduced sugar-free alternatives, while newcomers like Alani Nu have entered the fray, competing directly with Celsius.
This shift led to decelerating growth for Celsius this year, resulting in a decline in its stock value. Matters worsened in Q3 when it reported a 31% decline in sales due to an inventory mismatch at its largest distributor, PepsiCo. The company acknowledged that the gap between sell-in and sell-through was narrowing but would still have an impact on Q4.
Despite these challenges, Celsius remains popular among younger consumers, particularly teens. In a fall Piper Sandler teen survey, the brand ranked higher than its overall market share within the teen demographic. This bodes well for Celsius in the years ahead.
The company's most significant opportunity lies in international expansion. Monster Beverage and Red Bull have substantial international presences in Europe and Asia, whereas Celsius is only just beginning to explore these markets. It entered the Swedish market back in 2009, accounting for about 10% of the market share in that country.
With only 7% of its sales coming from international markets, compared to more than 35% for Monster, this represents a significant growth potential for Celsius. However, it will need to secure strong international distribution partnerships, as PepsiCo does not have the same extensive global distribution network as Coca-Cola, which distributes Monster.
Millionaire potential?
Celsius has room to grow due to its international expansion plans, while the U.S. market should recover after a tough year for the energy drink sector overall. Meanwhile, the company has secured shelf space for 2025 and has been innovating with new flavors and beverage lines, including expanding into the more male-dominated 16-ounce category with its Celsius Essentials line.
The company believes that as energy drinks become increasingly sugar-free, it can capture a larger market share. Recently, Celsius acquired co-packer Big Beverage, which handled much of its production. This move provides Celsius with greater production flexibility to introduce limited-time offerings, a lauded strategy employed by Alani Nu.
From a valuation perspective, Celsius currently trades at a forward price-to-earnings (P/E) ratio that is slightly above 28 times, based on next year's projections. This is similar to Monster's forward multiple, but Celsius has a much longer potential growth period due to its smaller size and limited international market penetration.
If Celsius can grow to the same size as Monster, it has the potential for 8x market cap growth (with a $6.3 billion market cap versus $50.4 billion for Monster). To achieve millionaire status with this investment, a significant investment would be required. However, it will be challenging for Celsius to increase its market share at a rate comparable to Monster.
But while Celsius likely won't become a millionaire-making investment on its own, the stock should still offer solid upside due to its international expansion potential, a potential U.S. market rebound, and an appealing valuation. Therefore, the beverage stock could be an excellent addition to investors' portfolios.
In the context of investing, considering the challenges Celsius has faced this year, could this be an opportunity to invest in a stock with significant long-term potential, given its position in the energy drink market and potential for international expansion?
With its successful international expansion strategies, such as securing a 10% market share in Sweden and aiming for growth beyond its current 7% international sales, Celsius might attract investors looking for a beverage stock with promising millionaire potential.
