Can Celsius Stock Avoid Repeating Crocs' Mistake?

Celsius Holdings (NASDAQ: CELH) stock became energized on Friday. Shares of the lifestyle brand of sparkling beverages that boost metabolism when consumed just before elevated cardio activity opened sharply higher following better-than-expected fourth-quarter results and a seemingly growth-invigorating acquisition.

The fourth quarter itself was a respectable recovery for the company, which surrendered half of its value last year. We'll get to that later. The real driver sending Celsius stock 33% higher at Friday's open is the seemingly perfect move to acquire fellow lifestyle brand Alani Nu in a $1.8 billion cash and stock deal. It looks great on paper. Investors better hope that this isn't a repeat of the time when Crocs (NASDAQ: CROX) thought it could jump-start its meandering growth with the acquisition of Heydude.

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Buying your way out of a growth lull

Celsius was growth stock royalty until proving mortal last year. It delivered three consecutive years of triple-digit growth before closing out 2024 with back-to-back quarters of declining revenue. Growth investors started to move on, and the plummeting share price wasn't enough to woo value investors. It needed something to shake things up, and that's exactly what it's getting in buying Alani Nu's parent company, Alani Nutrition.

Alani Nu is a rival functional energy drink, but it reaches primarily a female audience of sparkling beverage sippers. It also goes beyond the similarly svelte cans, offering protein shakes, dietary supplements, and snacks. The flagship beverage line is booming in popularity. The buyout announcement points out that third-party retail sell-through tracking data put out by Circana shows that Alani Nu sales soared 78% last month.

Celsius is getting in at an attractive price. It will pay $1.275 billion in cash and likely another $25 million based on the acquired brand's performance in 2025. There is also $500 million in new Celsius shares that will be issued to Alani Nu stakeholders to complete the deal. Celsius is also receiving a tax asset that it values at $150 million, bringing down the net price to $1.65 billion. The net price values the acquisition at a modest 3 times Alani Nu's 2024 sales and a reasonable 12 times last year's earnings before interest, taxes, depreciation, and amortization (EBITDA) adjusted for what would've been the synergies of a corporate combination. This compares favorably to Celsius stock, fetching an enterprise multiple of 4.4 times trailing sales and 37 times EBITDA as of Thursday's close. Those multiples are even higher now after Friday's pop.

The tax benefit coming with the deal suggests that Alani Nu has struggled with profitability. This isn't a deal breaker. In the hands of the larger and historically profitable Celsius and its strong distributor in minority shareholder PepsiCo, Alani Nu should hit the ground running as a contributor on both ends of the income statement. The risk here is if this plays out the way that it did for distinctive footwear maker Crocs when it acquired Heydude three years ago in a similar growth-boosting play.

Image source: Getty Images.

Step by step

Heading into the 2021 holiday season, Crocs announced a $2.5 billion deal to acquire the smaller -- and faster-growing at the time -- Heydude. When the transaction was completed in February 2022, the narrative was that Heydude's booming popularity would help offset the lull in organic growth for the Crocs brand. Heydude's footwear appealed to a different target audience, too. The deal was even structured in a similar way. It would be $2.05 billion in cash and $450 million in stock, with Crocs taking on debt to finance most of the cash price.

Crocs also pointed out that the deal would be accretive in sales and earnings growth for the combined company in 2022. It started out that way, but for the last two years it's been the namesake Crocs brand performing better than the Heydude spark plug that has been a bit of a dud.

The Alani Nu deal will hopefully not play out that way. It's brilliant in seemingly every way. Even Alani Nu thinking outside of the cylindrical can paves the way for Celsius to expand into new product lines for its signature brand. It should help smooth the lull of Celsius trying to get its organic growth back on track, but it was already making headway on that front.

After shocking the market with a 31% year-over-year decline in revenue for the third quarter, Celsius' latest financial update shows a better-than-expected 4% decline. Adjusted earnings landed ahead of analyst profit targets. International sales growth remains positive for the suddenly effervescent beverage stock.

Wall Street pros were already modeling double-digit growth for Crocs organically for sales and earnings this year. Now it will have not just a non-organic boost in Alani Nu, but the potential to take advantage of scalability and operating efficiencies. The road ahead looks clear. Celsius just needs to make sure it doesn't walk the next mile in Crocs' shoes.

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Rick Munarriz has positions in Celsius and Crocs. The Motley Fool has positions in and recommends Celsius. The Motley Fool recommends Crocs. The Motley Fool has a disclosure policy.