Celsius Holdings Is a Great Buy for Some Investors — And a No-Brainer Sell to Others


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Energy drink maker Celsius Holdings (CELH -4.64%) is a profoundly polarizing stock. The stock has many bullish supporters but also a lot of investors betting against it. The middle ground between love and hate is small and shrinking.

So, should you buy Celsius today and hang on for a bumpy ride in the long run, or sell and stay far away from this volatile ticker? The honest answer is that it depends. Let’s take a look at the upsides and downsides of buying Celsius stock today, and then you can decide where you land on that scale.

Reasons to buy Celsius Holdings

The company has found a lucrative niche in the energy drink market. Celsius sets itself apart from rivals like Red Bull and Monster Energy (MNST -2.23%) with a focus on healthy ingredients such as ginger root and green tea leaf. In fact, the sugar-free drinks are marketed as dietary supplements rather than energy drinks. Consumers are embracing that health-oriented message. Celsius’ revenues rose 137% year over year in the second quarter.

A recently signed distribution partnership with soft drink giant PepsiCo (PEP -2.36%) gives Celsius access to more shelf space in a broader selection of consumer-facing stores. That has to be good for Celsius’ future growth, especially since Pepsi also invested $550 million in Celsius stock. Pepsi’s direct investment may be the best argument in Celsius’ favor today since the food giant has a direct financial interest in helping the smaller company succeed in the long term.

Furthermore, growth investors are paying attention to these skyrocketing sales. In a period of inflation-based market worries, the S&P 500 (^GSPC -3.37%) stock market index is down by 14.7% in 2022 and energy-drinks leader Monster fell 7.2% over the same period. At the same time, Celsius shares posted a gain of 48.5%. Hence, Celsius appeals to traditional growth investors as well as to algorithm-driven fans of market momentum.

Reasons to sell Celsius Holdings

Celsius’ financial results are messy. While sales are surging in North America, international revenues decreased by 25% in the second quarter and profit margins are heading downward. If you’re looking for a classical growth stock with cleanly positive trends across the most important financial metrics, Celsius isn’t for you right now.

And if you’re not a growth investor at all, you could just stop reading here and sell your Celsius shares right away. The stock is valued exclusively on its surging top-line sales, and its profit-based valuation ratios are deal-breakers for value investors. For example, Celsius trades at 577 times trailing earnings and its free cash flows are negative.

In order to support its soaring stock price, Celsius needs to execute its business plan with crisp perfection. Anything less could trigger a dramatic price correction. Weighing that risk against the continued upward trend in Celsius’ stock chart, the short-seller interest is running at an all-time high:

CELH Percent of Shares Outstanding Short data by YCharts

Short-sellers are not always right but it’s still concerning to see the stock-shorting interest rising so quickly.

And if that’s how you feel today, but you already have some Celsius shares in your portfolio, there’s no shame in cashing in your gains to reinvest the cash in another stock that stands closer to your current strategy. The stock has risen by 2,710% in the last three years, after all.

Maybe you’d be more comfortable investing in the energy drink category through Monster, whose short-sales ratio stands below 2%. Or, you could invest in Celsius indirectly by relying on Pepsi’s 8.5% ownership of the company. PepsiCo’s short-sale ratio is just 0.6% today, reflecting the sector giant’s rock-steady market position.

Anders Bylund has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Celsius Holdings, Inc. and Monster Beverage. The Motley Fool has a disclosure policy.

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