Quick update on $CELH
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One of my favorite stocks $CELH was down 15% yesterday so I wanted to explain why and share my thoughts.
$CELH — the energy drink company that I have written about before and is still one of my top holdings.
Wednesday afternoon $CELH announced a stock offering of 6.5 million shares [read here] which was priced at $62.50 —this was lower than I would have liked to see especially considering the stock hit $83 on Tuesday morning. Over the past 3 days $CELH has pulled back approximately 25% however the stock had rallied more than 90% in 4 weeks so it was due for a breather.
With regards to the stock offering, out of the 6.5 million shares only 1 million of those shares are new stock issued by the company so the actual dilution to existing shareholders is only 1.5% — the other 5.5 million shares are being sold by a few large shareholders that have owned the stock for many years. On average they are selling 10% of their current shares which means they are holding onto the other 90%. This is still a bullish sign especially since those 5.5 million shares are going to large institutional investors that are likely to keep adding to their new $CELH position. The top end of the $CELH shareholder base was very concentrated so this offering helps alleviate that to a certain extent.
If the pricing had not been so low the stock would have barely dropped. I’m still a little surprised they priced it so low but here’s what I think is happening — $CELH needed to bring in $60+ million of cash in order to increase their aluminum can supply as well as product inventory.
$CELH is crushing it right now 🚀
I reported on Twitter last month that April scan data via Nielsen for $CELH was up +200% YoY and now for May the scan data is showing up +195% YoY. I have to believe that June will be at least +190% YoY which means the Q2 scan data number should be at least +195% YoY.
If you remember back to Q1 when $CELH reported earnings, their US operations were up 101% YoY and international sales were up 25% YoY. It just so happens that Nielsen scan data for Q1 was right around 100-105% YoY which means this scan data is a great indicator of US sales operations.
With this information, it’s fair to assume that $CELH Q2 US operations could be up 190-195% YoY and even if international only rebounds to 40% YoY it means that $CELH is going to put up a monster Q2 number in August.
Currently the analysts that cover $CELH have an average Q2 revenue forecast of $50 million which is 77% YoY revenue growth because last year in 2020 Q2 the company posted $28 million in revenues.
If I’m right in my forecasts and US operations for Q2 grows at 195% YoY (or anything close to it) and international grows at 40% YoY (could easily be 50-60%) and US operations should be 85% of overall sales then we could be looking at a YoY revenue growth number in the 165-175% range.
Even if we temper down these estimates, it’s still very possible we see $CELH put up $70 million for Q2 which would be 150% YoY and nearly double was the analysts are expecting. This would also be 40% QoQ which would be incredible. BTW, $CELH grew 42% QoQ from 2020 Q4 to 2021 Q1 so this would not be unprecedented. $CELH is able to grow this fast QoQ because of surging demand and more stores but also because of their transition from DTR to DSD which helps keep the shelves stocked — rather than doing DTR and relying on employees to stock the shelves. DSD is so much better for $CELH going forward and a big reason why I remain very bullish.
From the Q1 earnings report we know that $CELH was already in 92,000 stores (up from 82,000 when they reported 2020 Q4 and now working with 180 DSD partners (up from 150 partners when they reported 2020 Q4 numbers). When you are growing your business at 200% YoY with this many stores and this many DSD partners and rolling out branded coolers and going into the summer season when energy drink sales increase — I think it’s safe to say $CELH needed that $60 million in order to keep up with insane demand. I’m not sure about you but I think this is a good problem to have.
In my opinion $CELH got a little overheated in the $80s earlier this week and a pullback was needed however now that we’ve gotten a 25% pullback with no changes to the underlying business and a pretty good indicator that the business is still in hypergrowth mode and well positioned to crush Q2 estimates, I think $CELH is a strong buy in the low $60s.
I know a lot of investors missed $CELH on the way up so now is your second chance to jump into the stock and ride the rebound before they report Q2 earnings in early August. $CELH is executing extremely well right now and I don’t have a problem with my companies raising some extra capital in order to make sure that growth doesn’t slow down due to supply problems. Kudos to management for trying to get ahead of this.
In terms of valuation I think $CELH is still undervalued with the stock back in the low $60s.
My projections for 2021 have $CELH doing $270-300 million in revenues. With the stock now down 25% from the recent highs it brings the enterprise value back down to approximately $4.5 billion. This means $CELH is trading at 15.7x EV/Sales (using the midpoint of my full year revenue forecast). In my opinion, if $CELH ends up doing $285 million this year, that’s 120% YoY growth in which case this stock should be trading closer to 25x sales especially as they continue to increase their store count and DSD partners while operating inside of a $60 billion TAM with two giants (Red Bull & Monster) that they continue to take market share from. If $CELH was to trade up to 25x 2021 EV/sales in the next 3-6 months it takes the stock to $96 per share or 55% higher than yesterday’s closing price. This is what I’m expecting from $CELH over the next few months and why $CELH is still my third largest position and why I bought more call options yesterday.
With regards to the 25x sales for $CELH there are several ways I could justify that number but the easiest is just to compare financials against Monster Beverage (ticker: $MNST). $MNST currently has an enterprise value of $48 billion with expected revenues in 2021 of $5.4 billion which is approximately 16% YoY growth. If we do some quick math this means that $MNST is trading at 8.8x EV/sales with 16% YoY growth. I know that $MNST is bigger and has a longer track record with slightly better margins but there’s no way that $MNST deserves to trade at 8.8x sales with 16% growth if $CELH is only trading at 15.7x sales with 120% growth.
$CELH deserves a significant multiple premium over $MNST because of their current growth rate and future upside potential. $CELH has a very good shot at being a 5-bagger over the next 3-5 years but there’s zero chance of $MNST going from a $48 billion EV to $240 billion in the next 3-5 years (or ever for that matter).
If $MNST can trade at 8.8x sales with 16% growth then $CELH should be trading at 25x sales with 120% growth.
Therefore I’m expecting to see $CELH trade up to $96 per share by end of Q3 (depending on overall markets, economy, interest rates, etc) and then once we get into Q4 many investors will start looking at 2022 numbers so that’s when you could see $CELH break through $100 per share.
In summary, I know it sucks when your favorite companies do these stock offerings, especially when they price them low and the stocks drop on the news but there’s no reason to overreact or panic if you’re a longer term investor because in the case of $CELH nothing has changed with the story and this capital is simply being used to keep up with their tremendous growth.
I know there are lots of $CELH shareholders that get my Substack writeups so hopefully this quick update helped clear up any confusion after the past three days and the 25% pullback in the stock price.
If you have any further questions you know where to find me.
If you’re not already following me on Twitter (@JonahLupton) or in my Stocktwits room [click here] you might want to do both.
Have a great weekend everyone.
Jonah Lupton
PS: I should also mention that $CELH recently launched some protein bars and they are very good especially the white chocolate cookies and cream [order here]. These are honestly some of the best protein bars I have ever had. I actually bought another 12-pack box this morning since I already ran out of my first box.
Disclaimer: The stocks mentioned in this newsletter are not intended to be construed as buy recommendations and should not be interpreted as investment advice. Stocks mentioned in this newsletter should only end up in your own portfolio after you conduct your own research and due diligence. Many of the stocks mentioned in my newsletter have smaller market capitalizations and therefore can be more volatile and should be considered more risky. I encourage everyone to do their own research and due diligence before buying any stocks mentioned in my newsletter. Please manage your own portfolio and position sizes in accordance with your own risk tolerance and investment objectives.