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Why Celsius Holdings (CELH) Stock is a Compelling Investment Case

Forager Funds recently released its Q2 2020 Investor Letter, a copy of which you can download here. The International Fund’s 23.3% gain for the quarter took it to a 13.7% positive return for the full financial year, some 10.6% ahead of its benchmark. You should check out Forager’s top 5 stock picks for investors to buy right now, which could be the biggest winners of the stock market crash.

In the said letter, Forager highlighted a few stocks and Celsius Holdings Inc. (NASDAQ:CELH) is one of them. Celsius Holdings Inc. (NASDAQ:CELH) is a beverage company. Year-to-date, Celsius Holdings Inc. (NASDAQ:CELH) stock gained 279.5% and on August 10th it had a closing price of $19.83. Here is what Forager said:

“Celsius manufactures and distributes its products in the hypercompetitive energy drinks market. With globally established marketing juggernauts like Monster (Nasdaq:MNST) and Red Bull competing alongside hundreds of new startups every year, it isn’t easy to make your caffeinated lolly water stand out from the rest. But the rewards for the winners are enormous.

With revenue of less than $100m, Monster itself was a $50m minnow back in 2002. In less than 20 years, sales have grown to more than $4bn and investors have made some 700 times their money. Our expectations are more modest than that. But Celsius has been able to build a niche among gym-goers and image conscious consumers as a healthier alternative to the established players. It’s a niche that is growing rapidly

From just over $10m of sales in 2013, Celsius reported more than $75m of sales last year and is expected to exceed $115m in 2020. If the first quarter is anything to go by, it should sail on by that. Its products are now the third best selling energy drinks on Amazon, with a market share of 11%.

We need it to keep growing rapidly. The share price has doubled since our first purchase and the market capitalisation is now just north of $800m. While we are usually wary of such lofty expectations, our confidence in future growth is high. In fact, the blue sky scenario here could involve them capturing up to 10% of the $14bn US energy drinks market, resulting in $1.4bn of sales—more than 10 times the current run-rate.

While it already sells nationally in shops such as Target, CVS and Walmart, Celsius is currently in advanced negotiations with several large Direct Store Delivery (“DSD”) partners for significant regional expansion. These partners bring thousands of new stores, inclusion in coolers, better shelf placement and reduced inventory shortages. A recent due diligence trip to a few stores in the US showed a much more significant presence today than six months ago.

While the company expects organic growth of 30% from its traditional channels, this growth rate could more than double when DSD partnerships are added.

The company remains one of our largest investments, despite having taken significant money off the table as the share price has risen rapidly. We will continue to do so if the price keeps rising. But this business has a bright future. In March, PepsiCo (Nasdaq:PEP) agreed to buy Rockstar Energy for US$3.85bn. We believe a similar fate ultimately awaits Celsius, and we would like to be shareholders when it happens.”

In Q1 2020, the number of bullish hedge fund positions on Celsius Holdings Inc. (NASDAQ:CELH) stock increased by about 14% from the previous quarter (see the chart here), so a number of other hedge fund managers seem to agree with Celsius’s growth potential. Our calculations showed that Celsius Holdings Inc. (NASDAQ:CELH) isn’t ranked among the 30 most popular stocks among hedge funds.

The top 10 stocks among hedge funds returned 185% since the end of 2014 and outperformed the S&P 500 Index ETFs by more than 109 percentage points. We know it sounds unbelievable. You have been dismissing our articles about top hedge fund stocks mostly because you were fed biased information by other media outlets about hedge funds’ poor performance. You could have doubled the size of your nest egg by investing in the top hedge fund stocks instead of dumb S&P 500 ETFs. Below you can watch our video about the top 5 hedge fund stocks right now. All of these stocks had positive returns in 2020.

Video: Top 5 Stocks Among Hedge Funds

At Insider Monkey we scour multiple sources to uncover the next great investment idea. With Federal Reserve creating trillions of dollars out of thin air, we believe gold prices will keep increasing. So, we are checking out gold stocks like this small gold mining company. We go through lists like the 10 most profitable companies in America to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. You can subscribe to our free enewsletter below to receive our stories in your inbox:

Disclosure: None. This article is originally published at Insider Monkey.