On October 8, a caller asked whether Celsius Holdings, Inc. (NASDAQ:CELH) was broken or facing an execution problem. Mad Money host Jim Cramer replied:
I think it’s an execution problem but I have debated this and debated this… You know, I loved that last acquisition. I thought it was really terrific. But the fact is they are not executing at the level that they used to execute [at]… In the same way that I’m saying right now don’t take the Eagles offense, I would not take Celsius.
Celsius’s inclusion among analysts’ beverage-stock picks places it along with companies competing for the same consumer spending in different ways. The comparison provides a wider lens on where investors are looking beyond the energy-drink story.
The Broader Portfolio Is Still Growing
Celsius Holdings, Inc. reported second-quarter revenue of $817.9 million, up 11% year over year. Alani Nu contributed $364.4 million and Rockstar added $66.5 million. Management also said it completed Rockstar’s integration during the quarter.
Alani Nu benefited from consumer demand and increased customer orders during its transition into PepsiCo’s distribution system. That provides a growth opportunity, although shipment benefits from a distribution transition should not be treated as a recurring growth rate.
The valuation offers another reason to keep watching. Celsius trades at approximately 21.2x forward earnings, compared with 35.4x for Monster Beverage. The discount is substantial, although the two companies’ different profitability and execution records mean it does not establish that Celsius is undervalued.
Growth Has Not Protected Profitability
The weakness Cramer described is visible in Celsius Holdings, Inc.’s flagship brand. CELSIUS revenue declined 11.7% in the second quarter, highlighting promotional spending, inventory rebalancing, club-channel softness and product-assortment changes. Gross margin fell to 48.1% from 51.5%, while adjusted diluted EPS declined to $0.36 from $0.47. Signs of uneven demand had already surfaced in coverage of Celsius among long-term mid-cap picks. That analysis highlighted a split within the flagship lineup that the overall revenue figure could obscure.
The main difficulty is that acquisitions are expanding the company, but the original brand is losing revenue and the combined business is retaining less profit from each sales dollar. A larger portfolio gives management more ways to grow, yet it also makes distribution, promotions and product selection more complicated.
The forward earnings multiple assumes profits materially above the trailing result; a trailing P/E above 113x, versus the roughly 21x forward figure. Those measures can use different earnings bases, so the gap should not be read as a precise growth forecast. It does highlight why investors should examine the earnings assumptions behind the apparently lower valuation.
Short Sellers Maintain a Meaningful Position
Celsius Holdings, Inc. appeared in 49 hedge fund portfolios in Insider Monkey’s Q2 database, down from 52 in Q1. Short interest stood at 12.33% of the public float. Sachem Head Capital initiated a position with around 9.1 million shares in Q2 and became the top hedge fund holder of the stock. The combination of fewer fund holders and double-digit short interest shows considerable skepticism, although neither metric establishes how the next quarter will turn out. Cramer previously saw a potential opening in the pressure on Celsius, despite expecting an unfavorable quarterly comparison. His earlier buying approach hinged on a specific moment, offering a different perspective from his current reluctance.
Cramer still sees value in the acquired businesses, but he wants better execution before backing the stock. The lower multiple relative to Monster gives investors a reason to investigate. A return to growth for the CELSIUS brand, with less pressure on margins, would give them a more convincing reason to buy.
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