What happened

Shares of Celsius Holdings (CELH -7.76%) gained 35.5% in August 2023, according to data from S&P Global Market Intelligence. The maker of health-conscious energy drinks reported stellar second-quarter results on August 8 and never looked back.

So what

The company's distribution partnership with soft drink giant PepsiCo (PEP -2.66%) is paying off in spades. Celsius' second-quarter sales rose 112% year over year to $326 million. The richer revenue flow also drove bottom-line earnings 333% higher. Adjusted earnings of $0.52 per share exceeded the analyst consensus target by 79% and the top-line result beat the Street target by 19%.

CEO John Fieldly noted that the skyrocketing growth rested on "expanded availability and increased consumer awareness." That's the power of having an industry titan by your side, equipped with world-class systems for product distribution and marketing.

The stock closed 20% higher the next day. Celsius ended August with a slower but still impressive 13% gain in the last two weeks.

Now what

Celsius is now the third-largest energy drink measured by quarterly sales, behind Red Bull and Monster (MNST -3.60%). In the increasingly important Amazon.com (AMZN -1.44%) e-commerce channel, it leaped ahead of Red Bull to grab the second-place position. The Amazon channel accounted for 8.7% of Celsius' total sales, comparable to 8.8% in the year-ago period.

Given the free-flowing profits and debt-free balance sheet, one might argue that the company should boost its marketing budget. However, I'm not sure that would be a good use of Celsius' spare cash. After all, there are limits to how fast even an industry giant like Pepsi can ramp up a partner's production and distribution volumes.

Fieldly expects the Pepsi-powered rapid growth to continue over the next three to five years. I don't know what Celsius is saving up for, but the rich profits have already created a debt-free cash reserve of $681 million.

Come back when CEO Fieldly's five-year hypergrowth period ends, and we'll probably see a multi-billion-dollar cash pile on that pristine balance sheet. That is, unless Celsius is planning a buyout spree or a stock buyback binge. A generous dividend policy would be another option, but most high-growth businesses stay away from dividends until the business growth has mellowed out. Of course, something could also go wrong along the way, but Celsius is off to a strong start.

So I can't wait to see what Celsius wants to do with that growing cash account. In the meantime, Celsius shares look expensive at 16 times sales and 158 times free cash flows, but it's hard to pin a fair price on this incredible growth story.

The decision to buy Celsius stock or not comes down to your risk tolerance. Ambitious growth investors can pick up this ultra-caffeinated stock and buckle down for a few years of roller-coaster charts. Value-minded investors should stay away for now, hoping that Celsius' shares create a better buying opportunity by losing some of that extreme fizz.

Either way, Celsius faces formidable competition from Red Bull and Monster, and the market leader has a Coca-Cola (KO -1.04%) partnership to match Celsius' Pepsi network. In other words, Celsius may be poised for long-term success but nothing will come easy. Proceed with caution, dear reader.