Lululemon Athletica (NASDAQ: LULU) and Celsius Holdings (NASDAQ: CELH) are two consumer brands that have become wildly popular over the years. Both stocks have been on great runs the past several years, although both have had large sell-offs this year.
Let's look at why these stocks have sold off and why they could both be poised to see major rebounds in the second half of this year and beyond.
1. Celsius Holdings
Energy drink maker Celsius had been on a massive run the past five years, until about late May. Now the beverage stock suddenly finds its share price cut nearly in half from its all-time highs.
The company's success stems from carving out an attractive niche in the energy drink market by appealing to customers with a less aggressive aesthetic: differentiated flavors such as Peach Vibe, no-sugar options in a high-sugar category, slimmed-down cans, and a toned-down marketing message. A distribution deal with PepsiCo in 2022, meanwhile, gained the company widespread distribution across retailers, especially in the important convenience store channel.
However, after three consecutive years of 100% or more revenue growth, that growth has unsurprisingly begun to slow. The company is now essentially fully distributed in the U.S. First-quarter revenue growth of 37% was strong, but ultimately a huge deceleration from the 95% sales growth it was in the fourth quarter. Meanwhile, Nielsen data in tracked channels has shown growth continuing to slow week after week, down to 13% the last week of June, although the comparison was affected by the timing of the July 4 holiday.
Image source: Getty Images.
Despite its slowing growth in tracked channels, Celsius still has a number of opportunities in front of it that could help the stock rebound this year and beyond. International growth remains a big opportunity for the company. It's just barely scratching the service in terms of penetration, as it has just entered markets in the U.K. and Australia. It also has an opportunity for increasing items per store, better cooler placement, and growing in non-tracked channels.
Trading at under 35 times 2025 earnings estimates and with a price/earnings-to-growth (PEG) ratio of 1 times, the stock looks attractively valued for a growth stock that still has a number of good opportunities ahead of it. If the company can expand internationally and gain a similar niche to what it has in the U.S., the stock should perform well over the long term.
CELH PE Ratio (Forward 1y) data by YCharts.
2. Lululemon Athletica
Lululemon's stock has had a difficult year, with shares down over 40% year to date. Investors have been nervous about increased competition from the likes of upstarts such as Alo and Vuori, as well as potential fashion shifts. Cautious commentary about the U.S. consumer in March when it reported its fiscal fourth-quarter results, combined with its chief product officer leaving in May, only added fuel to the fire.
Last quarter, the company saw flat U.S. same-store sales , but a 29% jump in international same-store sales led to a 7% overall increase in same-store sales and a 10% overall increase in revenue.
International remains one of the biggest opportunities for Lululemon moving forward, and so far it appears the brand is resonating with international customers. However, the company also has the ability to reinvigorate growth in its North American markets through product innovation and category expansion.
The brand appears to remain strong, and the potential of an improved U.S. consumer and strong back-to-school season could also bode well for growth. Early indications are that the back-to-school shopping season is off to a good start, with Adobe Analysts noting that Amazon saw its Prime Day revenue for kids' apparel soar 165%, while other back-to-school items like backpacks and school supplies were up 216%. Other data points from the National Federation of Retailers, including May containership volumes and strong June retail, also point to a strengthening retail environment.
At a forward price-to-earnings (P/E) ratio of under 18 based on 2025 estimates, Lululemon is trading at one of the cheapest valuations in its history.
LULU PE Ratio (Forward 1y) data by YCharts.
Given its valuation, the opportunities in front of it, and the potential for a strong back-to-school shopping season, the apparel stock could be set up to see a strong rebound in the back half of this year and beyond.
John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Geoffrey Seiler has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Adobe, Amazon, Celsius, and Lululemon Athletica. The Motley Fool has a disclosure policy .
Most Popular
Comments / 0