Celsius Holdings Makes a Major Move in Energy Drinks: Should You Buy the Stock Down 68% From All-Time Highs?

Energy drinks used to be a sleepy category dominated by two players, Red Bull and Monster Beverage. Not much changed in regard to competition each year. Now, that has changed with the emerging growth of Celsius Holdings (NASDAQ: CELH) and its sugar-free energy drinks.

The brand has disrupted the entire energy drink category, with the two incumbent leaders now trying to defend their positions, PepsiCo investing in Celsius, and other brands successfully entering the space.

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Celsius has led the charge in sugar-free energy, but many brands are now nipping at its heels. This year, management decided it was time to team up with one of these upstart competitors, which is why it recently announced the acquisition of Alani Nu. The combined brands will be the third-largest player in energy drinks in North America, and the fastest-growing -- both by large margins.

Yet, as of this writing, Celsius stock is down 68% from all-time highs and can be counted as one of the worst-performing growth stocks of the last 12 months. Let's see if now is the time to lean in and buy some shares of this energy drink brand.

Strategic Alani Nu acquisition

Celsius' market share of energy drinks in North America has gone from a rounding error in 2020 to 11.8% today. How did it achieve these market share gains? By counter-positioning its brand when marketing versus traditional energy drinks. As a sugar-free product with vitamins, Celsius embraced fitness, influencers, and women much more than Red Bull or Monster, which is why the drink has become so popular. In fact, sugar-free energy drinks are now more popular than traditional beverages in North America, with Celsius making up 23.1% of this sub-category.

This rapid growth looks good when taking the long view, but it was not all smooth sailing for Celsius in 2024. Revenue growth and market share gains slowed down significantly in the year. Some of this was due to slowing orders from PepsiCo, which is Celsius' distribution partner, but it can also be attributed to upstart new competitors like Alani Nu gaining some share in the category. Even with this slowdown, Celsius estimates that its sales at retail -- which is different than its revenue selling to retailers -- grew 22% year over year in 2024.

In order to bolster its position in sugar-free energy drinks, Celsius is now acquiring Alani Nu for $1.8 billion, or $1.65 billion when you include tax credits that come with acquiring the company. The red-hot Alani Nu brand is growing faster than Celsius. Revenue was up 64% year over year at retail in North America last year, with Alani Nu having a larger presence with the growing demographic of female consumers of sugar-free energy drinks. At 4.8% market share and growing quickly, Alani Nu helps Celsius Holdings reach 16% of the entire energy drink category in North America.

Growing sugar-free energy and international expansion

While it is never good to need to acquire a competitor that is growing faster and taking market share, this Alani Nu deal looks smart for Celsius Holdings. The combined entity will be able to take advantage of the fast-growing sugar-free energy drink category in North America. Sugar-free has grown retail sales from $5.6 billion in 2020 to $11.7 billion in 2024, with Celsius and Alani Nu accounting for a lot of this growth. As sugar-free takes share from traditional energy drinks, I would expect that to lead to further revenue growth for Celsius Holdings.

Over the longer term, the big question is whether the Celsius and Alani Nu combo can succeed internationally. The majority of Monster and Red Bull revenue comes from outside North America. North America is a wealthy market, but it accounts for a small percentage of the global population. International revenue was just $74.7 million in 2024, but growing quickly at 37% year over year. This is a key line item for investors to track. If Celsius can succeed internationally, it will truly become the third major brand globally in energy drinks.

CELH data by YCharts.

Should you buy Celsius Holdings stock?

Combined, Celsius and Alani Nu collected around $2 billion in revenue in 2024. Assuming their growth in retail channels will continue and international revenue keeps growing at a strong double-digit rate, I think Celsius Holdings can grow its revenue at a 20% clip for the next three years. That would bring overall revenue to $3.45 billion in three years. Assuming a net profit margin of 20%, a bit above the current 10.7% reading, that brings consolidated earnings to $690 million.

Doing some quick math and adding in the acquisition cost -- which is being funded by stock and debt -- Celsius's enterprise value will rise to about $8.5 billion when the deal closes, based on the current share price. Compared to my three-year forward earnings estimate, Celsius stock is trading at around 12x of what its earnings could be three years from now.

To be fair, these earnings are three years in the future and will require sustained growth from both brands, but I think this is an affordable price for the leading disruptor in the energy drink category. Celsius stock looks like a buy today, down 68% from all-time highs.

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Brett Schafer 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.