After weeks of mulling over the decision, I finally decided on Securities in Celsius securities (NASDAQ:CELH). Shares of the energy drink maker have made massive gains under CEO John Fieldly, highlighting its ability to build a following in the fitness community and secure a lucrative distribution deal with a multinational giant. PepsiCo.
Nevertheless, the stock of drinks has declined significantly this year. It was in this environment that I bought Celsius shares, and there are three reasons why.
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As mentioned, part of Celsius competitive advantage comes from its growing popularity among fitness enthusiasts. Unlike competitors such as Red Bull and MonsterCelsius emphasizes natural ingredients such as green tea extract and ginger root. It also gets its caffeine source from guarana seeds, which contain more than twice the caffeine of coffee beans. This approach has made it the third most popular energy drink in the United States.
Despite the improving sales outlook for natural products, Celsius stock has fallen more than 70% from its peak due to excess inventory. A major Celsius distributor, likely PepsiCo, has cut back on purchases to reduce inventory.
As a result, in the third quarter of 2024, revenue fell 31% from last year's levels. This decline was so significant that its revenues for the first nine months of 2024 totaled $1 billion. This represents an increase of just 5% compared to the same period in 2023, and well below the 104% annual growth rate recorded during the first three quarters of 2023.
Additionally, net profit for the first nine months of 2024 was $131 million, 7% lower than 12 months ago. This came against the backdrop of a 31% increase in selling, general and administrative expenses. The effect was particularly severe in the third quarter, as the most recent quarter only brought Celsius $1.5 million in net profit.
However, Fieldly also said in the third-quarter earnings report that supply chain optimization challenges with its largest distributor have “largely stabilized.” Although shareholders should remain attentive to this issue, signs of a return to growth should help the stock.
An increase in international sales could boost revenue even further. Sales outside North America accounted for just 5% of revenue in the first three quarters of 2024. This was up from 4% in the same period in 2023, with revenue excluding North America having grown by 37% during the same period. This means that the international market is largely untapped, suggesting long-term revenue growth potential.
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