Cut in Half This Year, Can Celsius Stock Rebound in 2025?

While 2024 was a strong year for the market, one stock that struggled was Celsius Holdings (NASDAQ: CELH). Shares of the energy drink maker have been about cut in half this year, as of this writing, while the stock is down more than 70% from the highs it hit earlier in the year.

Let's look at what went wrong for Celsius this year and what needs to happen to see the stock rebound in 2025.

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Decelerating growth

While its energy drinks have been around for a while, the company burst onto the scene a few years ago after it expanded beyond its original gym and fitness channel focus. The brand leaned into a healthier-for-you marketing message while also targeting what had previously been a neglected market for the energy drink industry: women. With its slim can design and flavors, such as Peach Vibe, the company was able to attract females to the male-dominated market. In the past, the company has said its demographic split is about 50/50 men and women.

A distribution deal and investment from Pepsico, meanwhile, greatly expanded the brand's U.S. distribution, especially in the all-important convenience store channel. This helped lead to its sales more than doubling in 2023 to $1.3 billion.

However, once Celsius became fully distributed in the U.S., its sales growth, not surprisingly, began to slow. At the same time, convenience stores saw a decrease in traffic in 2024 as consumers began to struggle with the impacts of high inflation. Energy drinks are often impulse purchases, so the energy drink category as a whole saw growth slow.

To top things off for Celsius, the company saw its sales plunge 31% in Q3 due to inventory optimization from its largest distributor (Pepsico). It noted that it was seeing a tighter correlation between sell-in and sell-through, but the negative impact would still carry into Q4.

Image source: Getty Images

Growth opportunities

The biggest opportunity for Celsius moving forward is expanding into international markets. Currently, only about 7% of its sales come from abroad. Thus far, the company has only really established a strong presence in Scandinavian countries such as Finland and Sweden. Meanwhile, it has just started dipping its toes into markets like the U.K. and Ireland, starting with the gym and fitness channels, while also starting to enter markets such as Australia, France, and New Zealand.

By comparison, Monster Beverage (NASDAQ: MNST) gets over 35% of its sales from outside the U.S., while the majority of Red Bull's sales come from outside the U.S. (about 85%). As such, Celsius has a very long potential runway of growth as it enters more international markets. As in the U.S., the key will be for it to find the right distribution partners in individual countries and regions.

Meanwhile, continued innovation is another opportunity for the company. Earlier this year, the company entered the 16-ounce energy drink category with a seemingly more male-oriented focus using a more aggressive can design and a marketing message centered on performance. It initially launched this line, called Celsius Essentials, in 7-Eleven convenience stores, and it said it had seen little cannibalization of its other beverages' sales. Meanwhile, it has been introducing a number of new flavors, including cherry cola, lemonade, and sparkling water.

One interesting thing the company is planning is to introduce limited-time offerings (LTOs). This strategy helped vault Keurig Dr Pepper into becoming the No. 2 soda maker in the U.S. Celsius recently bought its co-packer, Big Beverages, in order to have better control over its supply chain and introduce new innovations such as LTOs. The Celsius brand already resonates with younger demographics -- it was recently the most popular energy drink by far in a Piper Sandler teen survey -- and leaning into different LTO flavors with marketing can become a big driver.

Valuation

From a valuation perspective, Celsius currently trades at a forward price-to-earnings (P/E) of just above 29 times based on next year's estimates. That's not too different than the 27 times forward multiple that Monster trades at currently.

CELH PE Ratio (Forward 1y) data by YCharts

However, Celsius is much smaller in size than Monster and has a much larger opportunity in front of it. The brand helped drive the energy market category in 2022 and 2023 in the U.S., and it will eventually have a similar opportunity to do so in international markets.

While the company will continue to deal with the inventory mismatch in the near term, its longer-term prospects remains solid. Meanwhile, the convenience store industry is looking for a traffic rebound in 2025, which should help the energy drink category as a whole. As such, the beverage company looks like a solid rebound candidate in 2025.

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Geoffrey Seiler has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Celsius and Monster Beverage. The Motley Fool has a disclosure policy.