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Was Bank of America right in cutting Celsius (CELH) stock target?

By: Invezz

Celsius Holdings (NASDAQ: CELH) stock price rally has stalled lately. After peaking at $69 in September, the stock has moved into a bear market as it dropped by over 20%. The sell-off intensified on Friday after losing a bull rating from Bank of America. So, is it safe to buy this dip?

Bank of America slashes Celsius

Celsius is one of the fastest-growing beverage companies in the United States as its products have become extremely popular among users. This growth is evidenced by the company’s strong revenue growth, which beats that of Coca-Cola, RedBull, and Monster Beverage.

Celsius Holdings revenue growth accelerated in the third quarter, helped by the company’s distribution relationship with PepsiCo. It jumped by 104% YoY to $385 million, with most of its sales coming from the United States.

Partnering with PepsiCo was a good decision for Celsius because of the challenge of building an entire global supply chain. For example, Monster Beverage has become a $55 billion juggernaut thanks to its partnership with Coca-Cola.

Celsius Holdings has grown across the board both in e-commerce platforms like Amazon and in other channels like hotels, casinos, and restaurants. Still, despite this progress, analysts at Bank of America slashed its buy rating arguing that its American growth had peaked. Besides, it is now available across the country.

However, as I wrote here, I believe that Celsius has room for international growth as we saw with Monster. The company intends to enter the Canadian market in the first quarter of this year. It also wants to expand in other countries in places like Europe and Asia. 

While the energy drink market is highly saturated, its American roots will likely help it gain popularity among consumers. We have seen this situation before with brands like Coca-Cola, Monster, and even Pepsi. 

This growth helps to justify the current extremely expensive valuation. The company trades at a forward PE ratio of 79, which is much higher than the sector median of 19. It is also trading at 10 EV/sales, which is also expensive. In the past, we have seen highly expensive stocks do well as long as they can maintain their momentum. For example, Monster has forward PE ratio of 36.

Celsius Holding stock price outlook

CELH chart by TradingView

In my first article on CELH, I warned that the stock was priced for perfection, meaning that the management must execute well. This view still stands. Turning to the daily chart, we see that the stock bottomed at $48.28 on December 1st and has now been bouncing back.

It remains above the 50-day Exponential Moving Average (EMA) and is hovering near the 23.6% Fibonacci Retracement level. Therefore, I suspect that the shares will continue consolidating ahead of the company’s earnings set for March 5th. An earnings beat and a better forward guidance will see it retest the all-time high.

The post Was Bank of America right in cutting Celsius (CELH) stock target? appeared first on Invezz

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