How to Play Celsius Holdings Stock After a 21% Drop in Three Months?

Celsius Holdings, Inc. CELH finds itself in a challenging position. Over the past three months, the company has seen its shares tumble 20.6%, underperforming the industry’s decline of 14.2%. The energy drinks giant has also lagged the broader Zacks Consumer Staples sector’s drop of 11.4% and the S&P 500’s growth of 1.1% in the same time frame.CELH Price Performance vs. Industry, S&P 500 & SectorImage Source: Zacks Investment ResearchClosing the trading session at $27.13 yesterday, Celsius Holdings stock stands 7.5% shy of its 52-week low of $25.23 reached on Nov. 18, 2024. CELH is also trading below its 50 and 200-day moving averages, indicating potential weakness in the stock's momentum.Despite its significant decline, CELH is trading at a premium relative to industry peers, which seems difficult to justify given the challenges surrounding the company.  CELH is currently trading at a forward 12-month P/E of 29.36, more than double the industry’s 14.51. Celsius Holdings’ Value Score of D further adds to these concerns.CELH Stock Trades at a Premium to IndustryImage Source: Zacks Investment ResearchThese aspects raise a crucial question for investors: Is this a temporary setback for Celsius Holdings, or does it signal deeper concerns about the company’s position in the energy drinks market? As the company works to navigate these headwinds, understanding its course and strategic priorities becomes important for those considering its long-term investment potential.What’s Sapping Momentum From Celsius Holdings Stock?Celsius Holdings has been grappling with a mix of internal and external challenges, leading to a notable dip in its stock performance. The company’s 31% revenue decline in the third quarter of 2024 was a major setback. A key reason behind the decline was a significant inventory optimization adjustment from its primary distributor, PepsiCo PEP, which slashed revenues by approximately $124 million. Although management anticipates inventory levels to stabilize by the fourth quarter, this heavy reliance on a single partner underscore potential risks.Broader macroeconomic pressures are straining the energy drinks segment. Consumer preferences are shifting toward healthier options, while reduced discretionary spending and waning enthusiasm for energy drinks further complicate the landscape. Declining foot traffic in crucial sales channels has dampened demand for CELH’s products, raising concerns for the near term.Competitive dynamics add to the broader hurdles. Industry leaders like Red Bull and Monster Beverage MNST are strengthening their offerings with sugar-free and health-conscious products, intensifying competition. This trend is particularly visible in convenience stores, where reduced customer visits have affected demand. To stay relevant, Celsius Holdings has adopted aggressive promotional pricing, which, while helping drive volume, has pressured profit margins.Speaking of margins, the company’s gross margin dropped 440 basis points to 46% in the third quarter, largely due to the full rollout of a PepsiCo incentive program designed to capture market share. However, this initiative has come at the expense of profitability. Sales and marketing expenses also remain elevated at 37.6% of revenues, reflecting Celsius Holdings’ commitment to enhancing brand visibility. Yet, the combination of high operating costs and shrinking margins raises questions about the company’s short-term profits, particularly amid rising competition and market uncertainties.Celsius Holdings Estimates: Is More Trouble on the Horizon?The Zacks Consensus Estimate for Celsius Holdings’ earnings per share for the current and upcoming fiscal years has been revised downward over the past 30 days. This shift indicates a growing bearish outlook among analysts and highlights potential obstacles the company may face in meeting its profitability goals. Image Source: Zacks Investment ResearchFind the latest EPS estimates and surprises on Zacks Earnings Calendar. Can CELH’s Growth Efforts Ignite a Recovery?Celsius Holdings is leveraging growth initiatives to spark a turnaround. The company is focused on innovation, branding and marketing to strengthen its competitive position. By regularly launching new flavors and product variations, CELH is addressing shifting consumer preferences and aiming to regain momentum in the crowded energy drink market.A key strength lies in its expansive retail presence. Celsius Holdings has secured prime shelf space in major retail chains, convenience stores and online platforms, enhancing its reach. Its diverse distribution strategy, including e-commerce and foodservice channels, bolsters revenues while mitigating seasonal or channel-specific fluctuations. In the third quarter of 2024, CELH saw robust gains with key partners. Sales to Amazon AMZN climbed 21%, and those to Costco grew 15%, highlighting the brand’s broad appeal.On the international front, Celsius Holdings is expanding aggressively into markets like Australia, New Zealand, France and the UK, backed by partnerships with major retailers such as Tesco and 7-Eleven. This global push aligns with rising health and wellness trends and reduces its dependence on North America, paving the way for sustainable growth.CELH Stock: Navigating the Road AheadCelsius Holdings’ strong brand positioning and loyal customer base provide a pathway to recovery and long-term success. However, the recent stock performance undeniably poses challenges for investors.  Factors such as dependency on a single distributor, shrinking margins and intensifying competition in the energy drinks space weigh heavily on the company's outlook. Without a clear path to addressing these challenges, CELH’s premium valuation appears difficult to justify, making the stock a potentially risky bet in the near term. The company currently carries a Zacks Rank #4 (Sell).You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.Free: 5 Stocks to Buy As Infrastructure Spending SoarsTrillions of dollars in Federal funds have been earmarked to repair and upgrade America’s infrastructure. 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