Where Will Celsius Stock Be in 3 Years?

Celsius (NASDAQ: CELH) shares have climbed 84% in the past three years (as of Aug. 20). That sounds like an impressive gain, but it's important to point out that the stock has tanked 58% just in the past five months. The market might be coming to grips with the fact that the company is entering a new phase of its lifecycle, one characterized by a more mature profile.

Celsius has probably caught the attention of buy-the-dip investors looking to take advantage of the weakness. Where will this surging beverage stock be in three years?

Expect growth to slow

The most important factor contributing to Celsius' share-price gains has undoubtedly been its tremendous revenue growth. Sales totaled $1.3 billion in 2023, up a jaw-dropping 25-fold from five years earlier in 2018. Celsius has leaned on its marketing tactics that emphasize health benefits. And it's tried to broaden the number of retail locations the products are in to reach more customers and expand the sales base. That plan has obviously worked wonders.

However, the growth will slow down. In fact, it already is. Revenue increased by 29% in the first six months of 2024. Management called out softness in the energy drink category of the overall beverage industry. It also doesn't help that PepsiCo , Celsius' key distribution partner, is lowering its inventory levels.

According to Wall Street consensus analyst estimates, the business is slated to grow sales by 23% annually between 2023 and 2026. That shows a significant deceleration compared to previous years. I believe this outlook is totally reasonable. Companies can't grow to the moon forever. And in Celsius' case, it might have already captured all the low-hanging fruit as far as expanding its distribution capabilities.

But the bright spot for Celsius is outside North America. The business started selling its energy drinks in Canada, the U.K., and Ireland in the first few months of 2024. New Zealand, Australia, and France will be tapped in the back half of this year.

For what it's worth, investors should be encouraged by the fact that the business is very profitable. That's typically not the case for fast-growing enterprises like this one. In Q2, net income totaled $80 million, translating to a margin of just under 20%. That's definitely a bright spot.

Valuation headwind

At its all-time high in March, shares traded at a ridiculous price-to-earnings (P/E) ratio of 126. Because of the stock's precipitous drop, the shares now sell at a P/E multiple of 40. Investors who remain bullish on the business might view this as a no-brainer buying opportunity. All else being equal, paying a lower valuation is desirable.

I'm not so sure about this perspective, though. At the current valuation, I still believe the stock is richly valued. I think it's very reasonable to expect Celsius' P/E ratio to continue coming down from here. Perhaps it starts to approach industry heavyweight Monster Beverage 's P/E multiple of 29. This creates a 28% headwind for investors. At that level, I'd take another look at Celsius and re-evaluate the stock.

But that potential price drop might still not be good enough. I also have limited confidence in Celsius' long-term prospects. Its ultimate success is far from a certainty. The business operates in an extremely competitive market, one in which consumers have a seemingly unlimited number of choices when it comes to energy drinks. The company's top-line deceleration could be an early indication that its best days are in the rearview mirror.

Celsius shares have been a big winner in the past. But I'm not that optimistic this stock will outperform the S&P 500 over the next three years. Therefore, I'll gladly pass on buying the business.

Neil Patel and his clients have 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 .