Is Now the Time to Buy the Dip in Celsius Stock?

If you have a tasty recipe and a penchant for marketing flair, it doesn't take much else to get into the energy drink market. A lack of dominant brands and ample profitability to go around have attracted new upstarts that are able to establish a foothold. One of those brands is Celsius (NASDAQ: CELH).

Rapid sales solidified with the help of a distribution partnership with PepsiCo (NASDAQ: PEP) in late 2022 helped push shares of Celsius stock up nearly 140% in the last three years alone.

However, that impressive performance includes a 42% drop from 52-week highs set in March 2024. Is it time to buy the dip in Celsius stock?

Just a bit of distasteful (not even bad) news does the trick

Celsius is a sugar-free energy drink maker. It's loved by the workout community and originally targeted a female demographic, and its sales growth gains would get the most diligent of leg-day enthusiasts pumped.

CELH Revenue (TTM) Chart

All the buzz following Celsius' first-quarter 2024 earnings update in early May was year-over-year revenue growth of "only" 37% to $356 million. Never mind the 108% year-over-year rise in GAAP earnings per share (EPS). The microscopes came out because the revenue increase was a steep slowdown from the year-over-year doubling in sales in 2023.

The cause? Distribution partner PepsiCo was shuffling around its product line-ups in the quarter, apparently due to a general slowdown in consumer spending. That slowdown appears to be getting a bit more pronounced in June, giving more rise to worry about a lackluster U.S. consumer this summer. Celsius management said to expect some volatility in top-line growth this year due to the ongoing effects of PepsiCo inventory management, although Celsius stocking on shelves and retailer fridges is expected to remain healthy.

But let's call it like it is. Earlier this year, when Celsius stock last peaked, the business was valued at well over 120 times trailing 12-month EPS. Even for a rapidly growing brand like this one, that's a steep price tag. A bit of disruptive news was bound to send the stock lower. Thus, I call this nothing more than a healthy pullback.

A best buy-the-dip candidate?

After the Q1 EPS surge and stock dip to go with it, Celsius now trades for a more reasonable 58 times trailing 12-month earnings, or 47 times Wall Street analysts' consensus for full-year 2024 earnings.

North American consumers are getting a bit more cautious in their spending this year as economic growth continues to slow. Thank the U.S. Federal Reserve for keeping interest rates higher for longer. Or, just blame normal cyclicality in consumer spending patterns.

Celsius has more going for it than just the U.S., though. After runaway success, Celsius recently began distributing in Canada, the U.K., and Ireland. Australia, New Zealand, and France will go live in the final quarter of this year. With international sales just a tiny slice of total revenue, it could be all upside for Celsius.

And if a slower-expanding business is to be the new normal, don't underestimate the company's ability to grow profits. Even in its early stages of growth (when profit is secondary to scaling up revenue), management has done a fantastic job in that department too.

CELH Free Cash Flow Chart

I bought a small position in Celsius stock early this year, with the intent of nibbling more here and there if the growth story holds. After the quarterly update, this seems like a good time to do just that. Some caution is certainly warranted, however, so I have no plans on making a big bet on Celsius anytime soon. In the highly competitive and often fickle consumer goods market, let Celsius prove its worth as a great investment over time.

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Nicholas Rossolillo and his clients have positions in Celsius. The Motley Fool has positions in and recommends Celsius. The Motley Fool has a disclosure policy.