CELH is a buy; fair value >$43 vs price ~$28 implies >52% upside despite increased risk.

In fact, there are several factors that led to the decline in Celsius stock by about 50% during the past year. The management team admitted that it had been overly aggressive in reducing the number of stockkeeping units for the core " Celsius" brand.

In addition, there are some difficulties in understanding, or indigestion, regarding the acquisitions of Rockstar and A-Shock and how to integrate these labels into their portfolio.

Finally, of course, there are macroeconomic headwinds , and higher distribution costs as a result of increased input costs and higher oil and transportation prices in general .

All these factors combined to cause the price of " Celsius" stock to drop by about 50%.

But is this a buying opportunity for long-term investors ? This is the main question I am trying to answer in this video. So, the energy drink sector is growing overall as a percentage of the total beverage market, and Celsius is also growing within the energy sector.

Part of that is due to acquisitions, and another part to substantial improvements in its products and distribution networks, especially international expansion. Overall, the company's business has grown to exceed $3 billion in revenue, up from about $300 million in 2022.

So, as you can imagine, when a company grows this fast, there are bound to be some growth pains. Some of those pains led to a slowdown in revenue growth, particularly in the core "Celsius" brand, and also slowed the expansion of profit margins.

Meanwhile, the management team reaffirmed its belief that it could achieve gross profit margins of around 50% . The expansion of margins was slower than expected. However, the good news for investors is that Celsius is generating sufficiently positive cash flow , and its cash flow from operations to sales ratio has remained in the double digits for the past few years.

That's a significant turning point for any company in its growth phase. This is the level at which the company can support itself and does not need to return to investors to ask for more capital.

It may do so opportunistically, but not out of desperation, and not in a position to pay exorbitant interest rates to borrow or reduce stock prices to sell shares and raise cash .

In addition, Celsius failed to show an improvement in returns on invested capital. If you look at the past decade, you will find that its returns on invested capital peaked at around 25% in 2019, and since then this metric has been volatile.

When you make acquisitions, divest investments, change your brand portfolio, and invest in manufacturing assets as Celsius did, you are sure to experience fluctuations in this index.

Investors are feeling a little uneasy about this trajectory.

Prior to these moves, and prior to the acquisitions and investments in manufacturing, the business was on a comfortable upward trajectory.

Since those moves, there has been more volatility in operations, and this is another expression of increased risks. When you have more volatility in operations , it means there is a possibility of greater gains, but there may also be greater losses.

The variance of potential outcomes increases, and this is synonymous with increased risk.

When you add risk, investors become less willing to invest, all other factors being equal. Now , there is one category in which Celsius excelled: revenue per employee, which was significantly higher than its larger counterparts .

If you look at its revenue per employee of 1.9 million, that's more than double the revenue per employee at Coca-Cola and more than 6 times the revenue per employee at PepsiCo, one of Celsius' strategic backers.

I don't think this is sustainable, but in the early days, it's a really encouraging sign for Celsius stock investors . Therefore, an interesting change has occurred at Celsius compared to its larger competitors Coca-Cola and PepsiCo.

Two years ago, Celsius consistently traded at a higher valuation than Coca-Cola and PepsiCo because its business was growing much faster. Typically, when you have companies that are growing faster with expanding margins and opportunities, they sell for a higher valuation compared to their more mature counterparts. This was the case with Celsus.

But that has changed in recent months. Celsius is now trading at roughly the same valuation as PepsiCo and is actually cheaper than Coca-Cola.

When measured on a price-to-earnings basis, Celsius is trading at 16.4, slightly higher than PepsiCo at 14 and considerably lower than Coca-Cola at 25. Thus, the high valuation due to Celsius' outstanding growth rates has almost faded.

Therefore, investors get the stock at a discount due to the difficulties I mentioned earlier in the video. I have also updated my Celsius discounted cash flow valuation model to incorporate these recent developments.

I have lowered my expectations regarding the amount of cash flow this company will generate over the next few years.

I also raised the risk assessment for the job because it has become more dangerous in recent months and weeks. Despite all those adjustments, I still see great upside potential here for Celsius stock.

I calculated a fair value of over $43. The current market price is slightly over $28. Therefore, over the next twelve to eighteen months, I see a potential for an increase of over 52% for Celsius stock.

Returning to the answer to the question I posed in the title , I see this as a buying opportunity, and I have updated my purchase rating today.

I have a moderate level of conviction about this buy rating, meaning I have moderate confidence that the stock price will deliver exceptional returns for investors that outperform the S& P 500 over the next 12 to 18 months .