Down 60% from peak. Should you buy this growth stock after the earnings announcement?

Celsius Holdings, Inc. (CELH) is a mid-cap company that develops, processes, and sells energy drinks and other dietary supplements to consumers. Its flagship beverage is CELSIUS, a fitness drink designed to boost metabolism and burn body fat. In addition to the ready-to-drink canned drink, it is also available in powder form.

Florida-based Celsius, which has a market capitalization of $9.22 billion, has manufacturing centers in North Carolina and Wisconsin and sells its products through convenience stores, grocery stores, clubs, health and fitness channels and drugstores.

CELH stock is down 30% this year and is trading near its 52-week low. The stock is down more than 60% from its May highs of just below $100.

Celsius falls on growth fears

Celsius shares have historically performed well, but have fallen sharply in recent months on signs of slowing sales and rising inventories.

In last week’s second-quarter earnings report, Celsius beat revenue estimates, posting $401.98 billion, up 23.4% year over year. Sales to Amazon (AMZN) rose 41% to $39.9 million.

Adjusted EBITDA rose 29% to $100.4 million, while gross profit as a percentage of revenue rose to 52% from 48.8% year over year. Earnings per share (EPS) was $0.28 per share, on an adjusted basis, up significantly from $0.17 in the prior-year period and beating the consensus estimate of $0.23.

While CELH shares initially surged following the report, they ultimately ended the day lower.

During the earnings call, management didn’t provide much clarity on related stock headwinds stemming from PepsiCo (PEP), with CFO Jarrod Langhans saying, “When we talked in June, it was ($20 million to $30 million), ultimately closer to the lower end of that range. Time will tell where we land in the third quarter… I think we’ll have to see where we go from there. Unfortunately, I can’t predict what our partners will do.”

President and CEO John Fieldly was more direct about the challenges facing CELH, saying: “The category is not growing.”

What are analysts’ forecasts for Celsius shares?

Analysts lowered their price targets for Celsius shares following the earnings report, with Bank of America cutting the stock to “Sell” with a price target lowered to $32 — a new street low. That suggests an expected downside of about 16.7% from current levels.

Elsewhere, brokerage firms Piper Sandler and Roth MKM have backed “Buy” ratings while cutting their price targets for CELH to $65 – about 70% north of that point.

At 38.23x forward earnings and 5.90x sales, CELH has a premium valuation, even amid forecasts that revenue growth will slow significantly this year (+18% expected, vs. 3-year CAGR of 99.5%). While stronger underlying trends suggest the stock should eventually become a buy candidate at a low, it still seems a bit too early to take advantage of CELH’s weakness at current levels.

As of the date of publication, Ruchi Gupta did not hold (directly or indirectly) a position in any of the securities mentioned in this article. All information and data in this article is for informational purposes only. For more information, please see Barchart’s Disclosure Policy here.