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CELH Stock Study (7-29-24)

Posted by on September 15, 2024 at 07:30 | Last modified: July 27, 2024 11:30

I recently did a stock study on Celsius Holdings Inc. (CELH) with a closing price of $48.02.

M* writes:

     > Celsius Holdings plays in the energy drink subsegment of the global
     > nonalcoholic beverage market, with 96% of revenue concentrated in
     > North America. Celsius’ products contain natural ingredients and a
     > metabolism-enhancing formulation, appealing to fitness and active
     > lifestyle enthusiasts. The firm’s portfolio includes its namesake
     > Celsius Originals beverages (including those that are naturally
     > caffeinated with stevia), Celsius Essentials line (containing
     > aminos), and Celsius On-the-Go powder packets. Celsius dedicates
     > its efforts to branding and innovation, while it utilizes third
     > parties for the manufacturing, packaging, and distribution of its
     > products. In 2022, Celsius forged a 20-year distribution agreement
     > with PepsiCo, which holds an 8.5% stake in the business.

Celsius Holdings was a pick for the Manifest Investing “Best Small Companies” portfolio last Halloween.

Although the medium-size company has been around since 2008, it actually delisted after three years before a second IPO in 2021. We do have stock data for the interim. I am excluding data through 2018 due to negative EPS.

Over the last 5 years, sales and EPS have increased at annualized rates of 108% and 19.0%, respectively. Revenue shows exponential growth but EPS is sideways, down, and suddenly high: hardly up, straight, and parallel. 5-year R^2 is 0.54 and Value Line gives an Earnings Predictability score of 35.

This company fails visual inspection, and I would limit any investment to speculative size only.

Over the past 5 years, PTPM trails peer and industry averages despite increasing from 13.3% (’19) to 22.1% (’23) with a mean of 3.5%. ROE also trails peer and industry averages despite increasing from 17.4% (’19) to 83.7% (’23) with a -45.4% mean (’22 ROE is -338%). Debt-to-Capital is much lower than peer and industry averages while decreasing from 13.0% (’19) to 0.2% (’23) with a mean of 3.0%.

M* reports Current and Quick Ratios of 4.1 and 3.4, respectively, and rates the company “Standard” for Capital Allocation. Value Line gives a B+ [extremely low, in my opinion, for a company with virtually zero debt] grade for Financial Strength.

With regard to sales growth:

My 15.0% per year forecast is below both long-term estimates.

With regard to EPS growth:

My 20.0% per year forecast is below the long-term-estimate range (mean of four: 29.4%). Initial value is ’23 EPS of $0.77/share rather than 2024 Q1 EPS of $0.91 (annualized).

My Forecast High P/E is 33.0. Over the last five years, high P/E ranges from NMF in ’22 to 2161. The only “sensible” numbers are 33.8 in ’19 and 89.5 in ’23. I am forecasting below the range.

My Forecast Low P/E is 19.0. Over the last five years, low P/E ranges from 19.2 in ’19 to 34.7 in ’23 (excluding 805 and NMF in ’21 and ’22) with a mean of 27.7. I am forecasting below the range.

My Low Stock Price Forecast (LSPF) is $33.60. Default ($17.30) based on initial value from above seems unreasonably low at 64.0% less than the previous close and 61.3% less than the 52-week low. My projection is (arbitrarily) less by 30.0% and 24.8%, respectively.

These inputs land CELH in the HOLD zone with a U/D ratio of 1.1. Total Annualized Return (TAR) is 5.7%.

PAR (using Forecast Average—not High—P/E) of 0.8% is unacceptable for any size company. If a healthy margin of safety (MOS) anchors the study, then I can proceed based on TAR instead.

To assess MOS, I compare my inputs with those of Member Sentiment (MS). Based on only 35 studies (my study and 7 outliers excluded) over the past 90 days, averages (lower of mean/median) for projected sales growth, projected EPS growth, Forecast High P/E, and Forecast Low P/E are 27.0%, 24.0%, 61.7, and 27.7, respectively. I am lower across the board. Value Line’s projected average annual P/E of 35.0 is lower than MS (44.7) and much higher than mine (26.0).

MS high / low EPS are $2.58 / $0.89 versus my $1.92 / $0.91 (per share). My high EPS is less due to a lower growth rate. Value Line’s high EPS of $2.50 is greater than both.

MS LSPF of $27.20 implies a Forecast Low P/E of 30.6: greater than the above-stated 27.7. MS LSPF is 10.3% greater than the default $0.89/share * 27.7 = $24.65 resulting in more aggressive zoning. MS LSPF is 19.1% less than mine, however.

With regard to valuation, PEG is reasonable at 1.4 and 2.2 per Zacks and my projected P/E, respectively.

MOS is robust because my inputs are below respective analyst/historical ranges and MS averages. Bolstering the case is my TAR that is 13.2% per year less than MS (18.9%).

I have a couple problems with Celsius Holdings as a prospective investment. First, not enough consistent EPS or P/E history exists for me to feel comfortable making nearby, linear forecasts. Second, I can’t buy into a sky-high future P/E (currently 52.9). The M* analyst report is downright bearish about long-term chances of taking market share from industry leaders. The CFRA analyst rates “Hold” with a more bullish report. Because of all the uncertainty, I need to maintain huge MOS.

The stock trading near 52-week lows caught my eye. Unfortunately, that doesn’t turn back the clock very far because capital appreciation over the last decade has been persistently strong.

Per U/D, CELH is a BUY under $41/share. BI TAR criterion is met < $32/share given a forecast high price ~$64.

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