Investors often rush into market leaders, driving expectations so high that any slowdown leads to sharp stock drops. 

Celsius (CELH) enjoyed rapid growth and a jump into the top three U.S. energy drink brands, but its revenue growth slowed down after distributor cuts and weak demand. 

The market now expects Celsius’s profitability to double, leaving little margin for missteps if organic growth or the Alani Nu acquisition underdelivers.

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When a business becomes a clear leader in its space, investors tend to pile in, often ignoring whether the price they’re paying makes sense.

This rush to own a winner inflates expectations to levels that become nearly impossible to meet.

The problem is, markets eventually demand results that match those expectations. And when the growth slows or cracks start to show, the stock suffers, regardless of how good the business still is.

Yesterday, we talked about Chipotle (CMG), a perfect example of this. It’s outperformed the industry for years, consistently growing profitability and expanding market share.

But today it faces rising input costs, growing competition from newer health-focused chains, and pressure from changing consumer habits, especially as GLP-1 weight loss drugs shift eating patterns and reduce overall food consumption.

Even with all these headwinds, the market still expects Chipotle to double its profitability by 2029.

That’s a high bar. And it’s not the only company priced for perfection.

This brings us to Celsius (CELH). Just like Chipotle, Celsius has built a strong brand and delivered rapid growth.

But now, investor expectations are soaring again, and the business may not be able to keep up.

After skyrocketing in 2023 and briefly touching $100 per share, the stock crashed to the low $30s within months. 

Now it’s climbed back over 30% this year, but the rebound masks real concerns.

Celsius makes sugar-free energy drinks marketed as fitness-friendly, with thermogenic ingredients designed to boost metabolism.

The company has made real progress. It’s now the third-largest player in U.S. retail energy drink sales behind Red Bull and Monster, with nearly 12% market share.

It’s also expanding globally, entering six new international markets last year and growing global sales.

But it’s not all momentum and growth anymore.

The big problem is revenue. Celsius went from growing revenue in triple digits to reporting a 31% year-over-year decline in Q3 last year.

That’s a massive reversal. 

Two things are driving the slowdown. First, inventory adjustments from its distributor, PepsiCo, which slashed its order volume by $124 million last quarter. 

Second, a clear drop in consumer demand and unit sales growth.

Even top players like Monster (MNST) and Red Bull have been hit by these broader industry trends, but Celsius seems to be getting the worst of it.

Despite this, the company just announced a $1.8 billion acquisition of Alani Nu, a competitor focused on female consumers.

That sent the stock soaring nearly 28% in a single day. Alani Nu is the fourth-largest energy drink brand in the U.S. retail market, and the deal could offer some synergies.

However, the energy drinks had a sluggish 2024, and we don’t yet know if Alani will meaningfully accelerate growth or improve margins.

Despite the slowing growth and weak consumer demand, the market is still expecting Celsius to grow its earnings at an accelerating rate.

We can see what the market thinks through our Embedded Expectations Analysis (“EEA”) framework.

The EEA starts by looking at a company’s current stock price. From there, we can calculate what the market expects from the company’s future cash flows. We then compare that with our own cash-flow projections.

In short, it tells us how well a company has to perform in the future to be worth what the market is paying for it today.

At the current stock price, the market expects the company’s Uniform return on assets ”ROA” to more than double to 68% from 29% last year.

Meanwhile, the market is valuing Celsius at around 42x Uniform P/E, higher than Monster, even though Monster has far better margins and more consistent performance.

If the company can’t return to strong organic growth, and if the Alani Nu deal doesn’t deliver, there’s little reason for the stock to keep climbing.

Best regards,

Joel Litman & Rob Spivey
Chief Investment Officer &
Director of Research
at Valens Research