Shares in energy drink maker Celsius Holdings, Inc. (NASDAQ: CELH) plunged more than $13, or 18.1%, last week, making it the worst performing U.S. stock with a market value of at least $2.5 billion.  Over the three weeks ended June 14th, CELH’s stock price has shed an aggregate $35, equivalent to a loss $8+ billion in stock market capitalization.  Compared with other energy drink makers, CELH produces healthier beverages which contain “good” ingredients like green tea extract, ginger root, and vitamins and less “bad for you” components such as sugar, sodium, and artificial preservatives.

The principal reason for CELH’s difficulties is a report released in May 2024 by Nielsen, a global consumer markets data firm, that Celsius’ energy drink market share had slipped from 10.8% to 10.5%.  A stock which is priced for perfection -- even after the recent sharp price declines, CELH trades at a 55x forward year P/E multiple and an enterprise value to revenue ratio of about 10x -- has little margin for error.

Some degree of slowing in the energy drink space was confirmed by Monster Beverage Corporation (NASDAQ: MNST) in a business update during its June 13^th shareholders meeting.  MNST did note, however, that energy drink sales in untracked channels and in many international markets remained strong.

Some analysts believe (fear?) that the reason for the slowing in energy drink consumption traces to weakness in low-end consumer spending, particularly in the convenience store and gas station store channels.  These locations comprise a remarkable 60+% of all energy drink sales.  A twelve-ounce Celsius Energy drink costs in the vicinity of $2 to $3 at a convenience store.

Per The Brainy Insights, a market research company, the size of the global energy drink market was just over $48 billion in 2023.  Aggregate worldwide sales of such beverages are expected to reach $111.2 billion in 2033, equivalent to an 8.7% compound annual growth rate (CAGR).

In 2023, CELH reported revenue of $1.32 billion, up 102% from 2022 sales of $653 million.  Gross margin last year reached 48%, markedly higher than the 41.5% in 2022.  CELH’s 1Q 2024 revenue was $355.7 million, about 37% more than $259.9 million in the year-ago period.  Gross margin edged up to 51.2% in the just-completed quarter.  CELH reported that it held an 11.5% market share in the U.S. energy drink category as of April 14, 2024.

Going forward, CELH promises to be an extremely volatile stock which is dependent on the next reading of -- or rumors about -- its energy drink market share.  A positive for CELH: it has performed much worse than energy drink peer MNST over the last three weeks, a period over which MNST has declined around 8%.  This could imply that a substantial portion of the bad news for CELH has already been priced in.  On the other hand, and as noted above, CELH cannot be considered an inexpensively priced stock.  Disappointing news could still cause further stock price corrections.

Stocks.News does not own positions in companies mentioned