1 Stock Down 65% Buy Now

The year 2024 is one Celsius (CELH 4.88%) shareholders would like to forget. The stock has lost 65% of its value since May, with investors turning against it amid an apparent inventory crunch.

Still, the inventory woes are likely to be temporary. With valuations more normalized, it may be time for investors to get back into beverage stocks. Here’s why.

Celsius Stock Status

Celsius has distinguished itself in the beverage market by taking a different approach to energy drinks. Unlike competitors such as Monster Drink or Red Bull, Celsius places more emphasis on natural ingredients. As a stimulant, it uses guarana extract, a form of caffeine derived from plants.

As consumers gravitate toward more natural foods, this approach has helped Celsius gain market share. Celsius is now the second-largest sugar-free energy drink brand, according to the company.

What’s more, some of the more successful consumer investments over the past few years have been energy drink stocks. That includes Celsius, whose shares are up nearly 2,600% over the past five years.

CELH data by YCharts.

However, the once-hot temperature of Celsius shares has come down significantly. The company has cited macroeconomic challenges and growing competition as challenges. To that end, one of the main distributors, most likely PepsiCobought significantly fewer degrees Celsius due to excessive purchasing in previous months.

Celsius downplayed the issue, reiterating that its partnership with PepsiCo remains strong. The company also announced new programs for 2025, including plans to improve innovation, additional channel and product capabilities, new partnerships and further international expansions. While it’s too early to know how effective those efforts will be, the continuous improvement efforts should reassure investors.

Celsius’s finances have cooled, but they could heat up again

Fortunately for long-held Celsius investors, growth remains solid. The company reported $758 million in revenue in the first half of 2024, up 29% from the same period in 2023.

That growth rate slowed to 23% annually in the second quarter, but the company said its sales were up 10 times the category’s growth rate.

In addition, most expense metrics outpaced revenue growth during the period. As a result, the $132 million in net income attributable to common stockholders in the first half of the year was up 82% year over year.

Moreover, despite the likely disappointment with the stock’s recent performance, investors looking for a great time to add Celsius shares may have finally found their opportunity. The price-to-earnings (P/E) ratio fell to 33, near its lowest level since the stock crashed in 2020.

Celsius doesn’t offer any forward guidance, with analysts only forecasting 9% revenue growth this year, so the current P/E ratio may seem expensive given that rate. Still, those same analysts are forecasting 17% revenue growth in 2025, making the earnings multiple seem more attractive.

Investing in Celsius shares

Macroeconomic challenges and distribution issues likely created an opportunity to buy Celsius shares. To be sure, lower purchases from distributors are a worrying sign in the short term, and macroeconomic headwinds rightly worry investors about future growth. Moreover, a decline of almost two thirds should worry even the most risk-tolerant investors.

However, investors also have reason to believe that the slowdown in growth may be temporary. Given that the brand’s overall growth is likely to continue, the distributor cutting back on purchases is more likely an inventory correction than a permanent turnaround against the brand.

Moreover, while the valuation is not cheap, a P/E ratio of 33 may seem more reasonable given the prospects for a return to double-digit revenue growth. If one can tolerate the risk, this is probably a great time to add Celsius shares.

Will Healy has no position in any stocks mentioned. The Motley Fool has positions in and recommends Celsius and Monster Beverage. The Motley Fool has a disclosure policy.