Celsius (CELH -4.41%) and Coca-Cola (KO -0.19%) are both beverage makers, but they attract different types of investors. Celsius is a smaller, higher-growth company that carved out a defensible niche with its healthier energy drinks. Coca-Cola, which owns a massive portfolio of well-known beverages, is a slower-growing market leader.
But over the past 12 months, Celsius' stock price plummeted 40% as Coca-Cola's stock price rose 6%. Let's see why the energy drink maker fizzled out -- and if it might bounce back and outperform the industry bellwether again over the next few years.
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Why did Celsius' stock crash?
Celsius sells sugar-free energy drinks made from natural ingredients like green tea, ginger, and taurine. It also claims its drinks have "thermogenic" properties that help people burn more calories during workouts.
That strategy locked in younger consumers and impressed PepsiCo, which invested $550 million in Celsius and became its U.S. distributor in 2022. PepsiCo subsequently expanded that distribution deal to Canada, while Celsius partnered with Suntory to sell its drinks in the U.K. and Ireland.
Celsius' revenue more than doubled in 2021, 2022, and 2023. But in the first nine months of 2024, its revenue only grew 5% year over year as it lapped the ramp-up period for its distribution deal with PepsiCo and its domestic market share declined.
Analysts expect its revenue to only rise 4% in 2024 and grow at a compound annual growth rate (CAGR) of 11% from 2023 to 2026. They also expect its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) to increase at a CAGR of 11% during those three years. That outlook seems stable, but it likely disappointed investors who had grown accustomed to its breakneck growth rates.
Celsius plans to maintain its momentum by expanding overseas, but it still generated 95% of its revenue in North America in the first nine months of 2024. It also faces intense competition from the market leaders Red Bull and Monster Beverage -- which is backed by Coca-Cola and also owns the smaller brand of Bang energy drinks.
With an enterprise value of $6.7 billion, Celsius looks reasonably valued at 19 times next year's adjusted EBITDA. But it probably won't attract a higher valuation unless its domestic growth accelerates again and it expands its overseas business.
Why did Coca-Cola's stock hold steady?
Coca-Cola might seem like a shaky investment because soda consumption rates are declining across the world. But over the past few decades, it offset that pressure by launching and acquiring more brands of sports drinks, juices, bottled water, tea, coffee, and even alcoholic beverages. It also refreshed its soda brands with smaller serving sizes, healthier versions, and new flavors to attract new customers.
That's why Coca-Cola is still considered an evergreen investment that can easily weather economic downturns. Its organic sales grew 16% in both 2021 and 2022, rose 12% in 2023, and it expects another 10% growth in 2024. It expects its comparable EPS to rise 5% to 6% this year (and 14% to 15% on a constant currency basis).
At $63 a share, Coca-Cola still looks reasonably valued at 22 times this year's earnings. It's a Dividend King that has raised its dividend annually for 62 consecutive years, and it pays an attractive forward dividend yield of 3.1%.
From 2023 to 2026, analysts expect Coca-Cola's reported revenue and EPS to grow at a compound annual growth rate (CAGR) of 4% and 9%, respectively. Those growth rates aren't jaw-dropping, but they're predictable and make it a good stock to buy and forget. Moreover, its investment in Monster, which dates back 10 years, also makes it a more conservative way to profit from the growth of the energy drink market than Celsius.
The better buy right now: Coca-Cola
Celsius is still growing, but its stock will remain out of favor as long as investors think its high-growth days are over. It's also unclear if it can successfully expand overseas and keep pace with Monster, Red Bull, and others in the evolving energy drink market.
Coca-Cola might generate tepid gains in a bull market as investors rush toward higher-growth plays, but it's still a rock-solid stock for long-term investors. That's why I believe Coca-Cola will remain a better buy than Celsius for the foreseeable future.
