I had originally intended this article to be a survey of the remaining large companies in the soft drink beverages industry, combining a short quantitative analysis of each side-by-side. When I looked at Celsius, however, I found more of a story than I expected, so this article will focus on CELH, with the survey coming up in the next article.
Though CELH has a mid-size market capitalization, it has a small cap revenue, $131 million in 2020. The company web site is investor-oriented, with scant information about products and highly-polished, buzzword-filled descriptions of the company and management. It is more like a resume than a selling site. Tellingly, the company has a code of ethics, which they will disclose to you if you make a request in writing. From the management page we learn about the CEO's "accelerated career" and "proven track record":
In his current role as CEO, Fieldly uses his strong background in financial leadership and operational expertise to focus on to maximize resources to drive revenue, corporate efficiencies, and shareholder value.
They are somewhat dependent on specialized distribution opportunities. For example, sales via Amazon were 12.0% and 15.1% of total revenue in 2019 and 2020. They have some distribution in Scandanavia, and a small amount of sales in SE Asia.
One advertising tag line they use is "live fit". A search for "celsius drink" will turn up a lot of sponsored ads within Amazon's site. The sponsored video I saw was of people working out in athletic gear at a gym (and drinking Celsius) with a pulsing, energetic synthesizer-based soundtrack. Overall, their drinks fit between the functional sports and weight control/nutritionals categories. They claim calorie-burning properties for some of their drinks, which they back with academic studies and papers conducted at universities.
Most of the data for this article was taken directly from the 2020 10K. (All annual reports here.)
CELH Valuation
Most of the shares of beverage companies covered here in the past few months were trading not far from their calculated valuation. In this case, the calculated value and stock price are significantly different.
The first possibility is that investors are looking at the 2019 revenues ($75M) and 2020 revenues ($131M), and assuming that the 75% revenue growth can continue. The line "unbelievable" in the table shows this scenario. CELH's 4/30/21 closing price was $57.30, more than ten times the most optimistic value. In February of 2020 CELH traded about $6, and this was not far from the $3 to $5 range it traded for 2018 and 2019. Since COVID, CELH has advanced ~10x in price, a move inspired by revenue growth, but not actually supported by the numbers actually posted. What is going on?
If you look at price targets of securities analysts, they are moving with the market. Three analysts cover CELH: Jeff Van Sinderen of B.Riley Financial, Jeffrey Cohen of Ladenburg Thalmann & Co., and Anthony Vendetti of Maxim Group. Average price target is $59.42. But since their reports were not available, we need to dig further.
What if we look at the potential eventual market size? Suppose Celsius grows to a billion dollar business? Are we in the right ballpark? It would seem so, from this Beverage Industry report on functional sports drinks. Total size of the protein et al market was $4B in 2020, while it is plausible that CELH could grow to some reasonable fraction of this size, say 15% to 25%.
So if we assume that Celsius can grow from $131M in 2020 to $1B by 2025, increase its net margin to 10%, and refrain from share count expansion, then the value of the company is shown in the "2025 bill$" line of the valuation table, or $25. This too falls short of the current market price.
There are some reasons to be skeptical of all of these valuations. Celsius has lost money over most of its lifetime (values are from Macro Trends; values except EPS are in millions):
Some recent revenue growth is from acquisitions, hence not all of the revenue growth is organic:
As a result of completion of the acquisition of Func Food in October 2019, we acquired the beverages, protein bars, supplements and superfoods marketed and distributed in Finland, Sweden,and Norway. These products are distributed under the FAST, FitFarm and Coco Vi brands and which are owned by Func Food. FAST products is a market leader in Finland and has begun distribution into the Swedish market. FitFarm and Coco Vi are well-established brands of superfoods and other supplements in the Nordic countries.
Corporate History as an Indicator
Sometimes the provenance of a company indicates its underlying philosophy. Quoting from the 2020 10K:
We were incorporated in Nevada on April 26, 2005 under the name “Vector Ventures, Inc.” and originally engaged in mineral exploration. Such business was unsuccessful. On January 26, 2007, we acquired the Celsius® beverage business of Elite FX, Inc., a Florida corporation engaged in the development of“functional” beverages since 2004 in a reverse merger, and subsequently changed our name to Celsius Holdings, Inc.
Celsius is also engaged in building reputation through clinical studies, which it funds:
We have funded seven U.S. based clinical studies for Celsius®. Each was conducted by a research organization and each studied the total Celsius®formula. The first study was conducted by the Ohio Research Group of Exercise Science & Sports Nutrition. The remaining studies were conducted by the Applied Biochemistry & Molecular Physiology Laboratory of the University of Oklahoma.
All of these studies were completed over 10 years ago, so the resulting data is not new. Although the research was conducted by a university, it was paid for by Celsius and to my knowledge not replicated elsewhere.
Insider Opinions
Investors have put in about $159,884,154, the paid in capital line on the balance sheet. Against this, the company has so far accumulated lifetime net losses of $55,426,832. With 74 million shares, even when CELH was at $4 the investors (as a group) were ahead, with a market cap of $300 million.
Going by insider sales records, the major holders of CELH can't believe their good fortune, and took profits at prices far lower than the current trading price. Carl DeSantis sold 720,784 shares 8/25/20 at $21.30, and then sold 459,054 shares on 11/24/20 at about $31 per share.
These prices are remarkably close to the last two valuation lines in our table above. (For any long term valuation, which is very volatile because of the long time periods and unknown growth rates to come, $25 and $31 are close enough together that one can essentially think of them as the "same".) Did the primary insiders have a "reserve price" in mind based on ultimate company revenue plans, and did the stock price meet these reserve prices in 2020? If so, we might see additional moderate sales in the next few months, though an insider in CELH might also be hoping to sell the company to a PEP or KO at some point, for an even larger payoff.
Your Decision: Sell or Avoid, Unless
CELH is traded over twice its present long term value. With only 24.1% of the shares floated, CELH is likely hard to borrow and subject to short squeezes. If you don't own it, I can see no reason to pay up for it. If you do, it's in speculative territory, and over the long term more likely to decline to $25 than to rise to $100. Of course, these decisions depend on the product. Do you drink Celsius, and therefore understand its fundamental value to people? Are you a regular buyer? Is it a compelling value over other functional sports and weight loss drinks? If you have this kind of "inside info" you can refine our valuation further.
Would it be an attractive takeover candidate for KO or PEP? At the moment, it is not yet ready for that kind of acquisition, and it's already priced as though it were. If I were the KO CEO, I'd be leery of paying such a huge premium for so little revenue. Any acquisition would need to be at least a doubling of revenue further into the future.
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