Celsius (CELH)

Energy drink company Celsius (NASDAQ:CELH) missed Wall Street’s revenue expectations in Q1 CY2025, with sales falling 7.4% year on year to $329.3 million. Its non-GAAP profit of $0.18 per share was 5.9% below analysts’ consensus estimates.

Company Overview

With its proprietary MetaPlus formula as the basis for key products, Celsius (NASDAQ:CELH) offers energy drinks that feature natural ingredients to help in fitness and weight management.

These companies' performance is influenced by brand strength, marketing strategies, and shifts in consumer preferences. Changing consumption patterns are particularly relevant and can be seen in the rise of cannabis, craft beer, and vaping or the steady decline of soda and cigarettes. Companies that spend on innovation to meet consumers where they are with regards to trends can reap huge demand benefits while those who ignore trends can see stagnant volumes. Finally, with the advent of the social media, the cost of starting a brand from scratch is much lower, meaning that new entrants can chip away at the market shares of established players.

Competitors that offer energy drinks or alternatives to energy drinks include Monster Beverage (NASDAQ:MNST), Rockstar Energy from PepsiCo (NASDAQ:PEP), and Coca-Cola Energy and Full Throttle from Coca-Cola (NYSE:KO).

A company’s long-term performance is an indicator of its overall quality. Any business can have short-term success, but a top-tier one grows for years.

With $1.33 billion in revenue over the past 12 months, Celsius is a small consumer staples company, which sometimes brings disadvantages compared to larger competitors benefiting from economies of scale and negotiating leverage with retailers. On the bright side, it can grow faster because it has a longer list of untapped store chains to sell into.

As you can see below, Celsius’s sales grew at an incredible 49.5% compounded annual growth rate over the last three years. This is an encouraging starting point for our analysis because it shows Celsius’s demand was higher than many consumer staples companies.

This quarter, Celsius missed Wall Street’s estimates and reported a rather uninspiring 7.4% year-on-year revenue decline, generating $329.3 million of revenue.

Looking ahead, sell-side analysts expect revenue to grow 77.2% over the next 12 months, an acceleration versus the last three years. This projection is eye-popping and implies its newer products will catalyze better top-line performance.

Celsius has great unit economics for a consumer staples company, giving it ample room to invest in areas such as marketing and talent to grow its brand. As you can see below, it averaged an excellent 50% gross margin over the last two years. That means for every $100 in revenue, only $49.99 went towards paying for raw materials, production of goods, transportation, and distribution.

Celsius’s gross profit margin came in at 52.3% this quarter, up 1.1 percentage points year on year and exceeding analysts’ estimates by 5.5%. On a wider time horizon, the company’s full-year margin has remained steady over the past four quarters, suggesting its input costs (such as raw materials and manufacturing expenses) have been stable and it isn’t under pressure to lower prices.

Operating margin is a key profitability metric because it accounts for all expenses enabling a business to operate smoothly, including marketing and advertising, IT systems, wages, and other administrative costs.

Celsius has been an efficient company over the last two years. It was one of the more profitable businesses in the consumer staples sector, boasting an average operating margin of 15.6%. This result isn’t surprising as its high gross margin gives it a favorable starting point.

Looking at the trend in its profitability, Celsius’s operating margin decreased by 12.2 percentage points over the last year. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability.

In Q1, Celsius generated an operating profit margin of 15.8%, down 7.6 percentage points year on year. Conversely, its gross margin actually rose, so we can assume its recent inefficiencies were driven by increased operating expenses like marketing, and administrative overhead.

We track the change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

Celsius’s EPS grew at an astounding 105% compounded annual growth rate over the last three years, higher than its 49.5% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.

In Q1, Celsius reported EPS at $0.18, down from $0.27 in the same quarter last year. This print missed analysts’ estimates, but we care more about long-term EPS growth than short-term movements. Over the next 12 months, Wall Street expects Celsius’s full-year EPS of $0.35 to grow 202%.

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

Celsius has shown terrific cash profitability, driven by its lucrative business model that enables it to reinvest, return capital to investors, and stay ahead of the competition. The company’s free cash flow margin was among the best in the consumer staples sector, averaging 15.7% over the last two years.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

Although Celsius has shown solid business quality lately, it historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 7.5%, somewhat low compared to the best consumer staples companies that consistently pump out 20%+.

One of the best ways to mitigate bankruptcy risk is to hold more cash than debt.

Celsius is a well-capitalized company with $977.3 million of cash and $19.7 million of debt on its balance sheet. This $957.6 million net cash position is 11% of its market cap and gives it the freedom to borrow money, return capital to shareholders, or invest in growth initiatives. Leverage is not an issue here.

We enjoyed seeing Celsius beat analysts’ gross margin expectations this quarter. On the other hand, its revenue missed and its EBITDA fell short of Wall Street’s estimates. Overall, this quarter could have been better. The stock traded down 8.1% to $31.20 immediately after reporting.

Updated: May 16, 2025 at 10:49 PM EDT

Before making an investment decision, investors should account for Celsius’s business fundamentals and valuation in addition to what happened in the latest quarter.

There’s plenty to admire about Celsius. First off, its revenue growth was exceptional over the last three years and is expected to accelerate over the next 12 months. And while its declining operating margin shows the business has become less efficient, its powerful free cash flow generation enables it to stay ahead of the competition through consistent reinvestment of profits. On top of that, its projected EPS for the next year implies the company’s fundamentals will improve.

Celsius’s P/E ratio based on the next 12 months is 37.2x. This valuation tells us it’s a bit of a market darling with a lot of good news priced in. Add this one to your watchlist and come back to it later.

Wall Street analysts have a consensus one-year price target of $42.94 on the company (compared to the current share price of $38.40).

Want to invest in a High Quality big tech company? We’d point you in the direction of Microsoft and Google, which have durable competitive moats and strong fundamentals, factors that are large determinants of long-term market outperformance.

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