When investors start to turn on a growth stock, things can get ugly in a hurry. Celsius Holdings (NASDAQ: CELH) is a prime example of that. Although in recent years it has generated some terrific returns for investors, the tide looks to have turned, significantly. Entering trading on Monday, shares of Celsius have fallen more than 60% over just the past six months.
Below, I’ll look at why investors have become so bearish on the stock of late, and whether this could make for a good buying opportunity.
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Celsius Holdings has been a hot growth stock in recent years, becoming one of the top names in the energy drink industry. But the inevitable problem many growth stocks face is that sooner or later, their impressive growth rates slow down. And as that happens, the bullishness and excitement can start to dissipate.
For Celsius, alarm bells started going off for investors and analysts back in May when it reported its quarterly results. Revenue for that period, which ended on March 31, grew at a rate of 37% year over year. While that was an impressive year-over-year increase, it was a much slower pace than the 95% revenue growth it achieved just three months earlier.
In the months that followed, analysts took on more bearish positions, downgrading their price targets for the stock, which resulted in far less excitement around Celsius than in the past, when it could seemingly do no wrong.
Not only has Celsius’ growth rate diminished, but it even went negative in the company’s most recent quarterly results. It shouldn’t come as a huge surprise to investors, however, as Celsius’ key distributor, PepsiCo, has been reducing inventory levels, and that has weighed on the energy drink company’s latest numbers.
Celsius’ third-quarter sales totaled $265.7 million for the period ending Sept. 30, which was down 31% from the same period last year. The company blamed the drop on “pronounced supply chain optimization by our largest distributor,” without specifically naming PepsiCo.
Management says it believes the situation has stabilized now, but it still underlines a big vulnerability in Celsius’ operations where such an adjustment from a key distributor can have a significant impact on the company’s overall financials. Due to lighter growth and rising operating expenses, Celsius’ net income dropped a mammoth 92% during the period, to just $6.4 million.
