Two former energy drink darlings are trading lower this year, but I’m backing the underdog.
The last couple of months have been painful as a Celsius Holdings (CELH 3.26%) investor. Shares of the functional beverage company have plummeted 60% since hitting an all-time high five months ago. I’m still here, rattled but present. Growth has slowed dramatically for the company behind the sparkling energy drinks that safely raise your body temperature to accelerate the burning of fat and calories when accompanied by cardio activity.
In the other corner you have Monster Beverage (MNST -0.15%), second only to Red Bull in the energy drink market worldwide. Monster has also had a recent falling out with investors, but this year’s stock chart is more kind. I’m a fan of what Monster has accomplished, but for now I’m only an investor in Celsius.
1. Celsius is growing a lot faster
Celsius saw its revenue climb 23% in its latest quarter earlier this month. It’s a far cry from the triple-digit gains it posted in each of the last three years. Earnings per share rose a more respectable 65%, but also well below the heady clip it had previously posted. Expectations are for the deceleration to continue, with top-line growth in the teens for the second half of the year and a 19% increase for all of 2024.
Monster offered up its fresh financials a day later, and the story was considerably worse. Reported revenue inched less than 3% higher for the same three months in which Celsius came through with a 23% year-over-year jump. Monster points out that its top line would’ve moved 6% higher on a currency-adjusted basis or risen 7% if you exclude its struggling alcohol business, but even in that twice-adjusted scenario Celsius is growing more than 3 times faster. Celsius’s share of the country’s energy drink market has risen from 9.6% to 11% over the past year, despite slipping sequentially from its first-quarter peak. Monster is largely marching in place.
The disparity gets wider on the bottom line. Monster’s gross margin improved, but that was no match for the sharp rise in operating, distribution, and selling, general, and administrative (SG&A) costs. Monster’s net income also failed to top 3% growth, inching 5% higher on a per-share basis. I’ll take Celsius’ 65% surge on that basis over that performance.
Image source: Getty Images.
2. Winners find a way to win
A popular if not stunning newsy nugget is that Monster is the market’s best performer over the 30 previous years. It was just a small juice company before it exploded on the scene as an energy drink darling, introducing its now namesake beverage in 2002.
That’s a long time, but let’s zoom in. Monster shares are up just 64% over the past five years. Celsius is a 26-bagger in that time, one of the top performers over the past five years even after its recent swoon.
You can’t take away Monster’s amazing pedigree. It has posted revenue growth of 9% or better for 23 consecutive years. However, it has also failed to top 14% growth in all but one year over the past decade. That streak of 9% or better growth is likely to end this year.
Monster has also fallen short of Wall Street profit targets in back-to-back quarters now. It’s a different story for Celsius. It has come through with six consecutive reports of double-digit percentage beats on the bottom line.
| Quarter | EPS Estimate | EPS Actual | Beat |
|---|---|---|---|
| Q1 2023 | $0.07 | $0.13 | 86% |
| Q2 2023 | $0.09 | $0.17 | 89% |
| Q3 2023 | $0.16 | $0.30 | 88% |
| Q4 2023 | $0.15 | $0.17 | 13% |
| Q1 2024 | $0.27 | $0.19 | 42% |
| Q2 2024 | $0.24 | $0.28 | 17% |
Data source: Yahoo! Finance. EPS = earnings per share.
3. Celsius trades at a reasonable premium to Monster
Beverage stocks can be tricky, and this summer has been rough for the energy drink market in particular. Is this the start of a larger trend away from the canned adrenaline or is it just a summertime fluke as the atypically hot temperatures have folks turning to more traditional hydration sources? The next few quarters will be critical for this once-booming niche, but I still like Celsius’ valuation relative to Monster.
Celsius trades at 39 times trailing earnings to Monster’s multiple of 29. However, the difference narrows if you look out to next year given the superior projected earnings growth at Celsius. Celsius is trading at 33 times next year’s expected profit compared to Monster’s multiple of 25.
The two companies have cash-rich balance sheets and comparable revenue multiples. The difference here is that Monster is mature and established worldwide. Celsius is earlier in its growth cycle. Sales are growing faster overseas for Celsius, but that’s still less than 5% of the revenue mix. Monster is fine, but I think Celsius will be the better stock over the next few years.
Rick Munarriz has positions in Celsius. The Motley Fool has positions in and recommends Celsius and Monster Beverage. The Motley Fool has a disclosure policy.
