Why Celsius Holdings Shares Lost 19% in August

2024 has been a tough year for Celsius holdings (CELH 4.47%)the successful maker of energy drinks whose shares have soared since the pandemic. August was another challenging month for the stock.

Growth delay due to oversupply by distribution partner PepsiCo continued to put the brakes on the company and its shares.

In addition to slowing growth, investors appeared concerned about broader consumer spending challenges, recession fears and the stock’s high valuation.

According to data from S&P Global Market Intelligence, the stock ended the month down 19%. As you can see in the chart below, the stock fell early in the month due to the broader market sell-off and a disappointing earnings report.

^SPX data from YCharts.

Celsius stocks get cold

Celsius fell sharply in the first few sessions of August as broader stocks fell on weak economic data. While Celsius is considered a consumer staple, energy drinks, which tend to be more expensive than soft drinks, are likely more sensitive to the strength of the overall economy.

The stock fell after the second-quarter earnings report, even though the P/L numbers missed expectations.

Revenue rose 23% to $402 million, above consensus of $393.2 million, marking a significant slowdown from the prior quarter. Gross margin rose to 52% from 48.8%, a positive sign that helped earnings per share rise to $0.28 from $0.17, above estimates of $0.24.

The company noted that sales of its product were strong, with sales up 36.5% in the quarter at retail and convenience stores. However, management also cited a reduction in inventory at a major distributor, reportedly Pepsi, which spooked investors in the growth stock.

Image source: Celsius.

What’s next for Celsius?

Celsius confirmed these concerns during a conference call in the first week of September, indicating that Pepsi’s orders would fall by $100 million to $120 million in the third quarter, which would put a significant dent in year-over-year growth.

On September 4, the day of the presentation, the stock fell 12%.

Celsius now trades at a more reasonable valuation, with a forward price-to-earnings (P/E) ratio of just 36, though the stock’s days of explosive growth are likely over.

The energy drink category is finally coming of age, as evidenced by weak growth among larger competitors Monster Potion after a decades-long run.

Celsius stock certainly has further room to rise from here, but investors shouldn’t expect the kind of growth seen earlier this decade.