Shares of each of the “Magnificent Seven” have made for wonderful investments in the last five years. But Nvidia stands out. The AI chip maker’s stock has soared 1,940% during that time.
However, there’s one under-the-radar beverage stock that has fared much better. I’m talking about budding energy drink maker Celsius (NASDAQ: CELH). In the past five years, its shares have skyrocketed 6,000%, turning a $1,000 initial investment into a whopping $61,000 (as of Feb. 29).
Let’s take a closer look at what drove those gains, followed by the investment merits of the business today.
Business is booming
Investors shouldn’t be surprised that growth was the most influential factor in Celsius’ performance. This is true of the Magnificent Seven as well.
From a financial standpoint, last year was another impressive showing for Celsius. It generated revenue of $1.3 billion, which was up 102% year over year and 25 times higher than in 2018.
“We continued to drive growth of the category by bringing in new loyal consumers, as well as increasing consumption occasions,” CEO John Fieldly said about the results.
These gains are all the more impressive when you consider the state of the economy. I don’t think anyone would disagree that the macro backdrop isn’t as accommodating as it was a few years ago, with higher interest rates and ongoing inflationary pressures prevalent. But demand for Celsius’ energy drinks is through the roof.
Management has done an excellent job of raising the brand’s awareness and distribution capabilities. Celsius is the top-selling energy drink on Amazon, commanding a higher share than well-known rivals Monster and Red Bull. This is an amazing feat because the massive e-commerce platform has billions of visitors every month. This position bodes well for Celsius.
In August 2022, PepsiCo took an equity stake in Celsius and became its distribution partner in the U.S. and internationally. This followed a similar strategic move made by Monster, which partnered with Coca-Cola in 2014 to expand its distribution.
And that rapid growth has benefited Celsius when it comes to profitability. The company reported operating income of $266 million last year, a huge improvement from the $158 million loss in 2022. Boosting the bottom line was a 14% drop in selling, general, and administrative expenses. Rising earnings are just what shareholders want to see.
The deciding factor
Given the stock’s rapid ascent, it’s not cheap by any means. Celsius trades at a forward price-to-earnings ratio of 72.6. That makes it more expensive than any of the Magnificent Seven stocks.
In my opinion, this valuation prices in the assumption that Celsius can continue to grow to the moon. That extreme optimism makes me hesitate to buy shares.
Even Wall Street sees a slowdown happening. Consensus analyst estimates call for revenue to increase by 37% this year. While forecasts should always be taken with a grain of salt, this would represent a dramatic deceleration for Celsius, which I think is the reasonable expectation.
But the current valuation implies monster growth indefinitely. That means the stock is likely priced for perfection today, as is the case with some of the Magnificent Seven components.
The rise of Celsius is nothing short of spectacular. Investors should definitely add the business to their watch lists, monitor growth and profitability trends, and just practice patience and wait for a much better entry point.
Should you invest $1,000 in Celsius right now?
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Neil Patel has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon, Celsius, Monster Beverage, and Nvidia. The Motley Fool has a disclosure policy.
1 Skyrocketing Stock That Crushed the “Magnificent Seven” in the Last 5 Years was originally published by The Motley Fool