Why Celsius Stock Is Starting to Look Like a Screaming Buy Right Now

CELH +1.52%

For investors looking for a top growth stock to buy now, I'd say the reality is there aren't many great options out there from a valuation standpoint. Indeed, many of the top AI-related stocks in the market have soared to astronomical levels, and investors looking for those sorts of 10x opportunities that seemed plentiful a few years ago may have less hope of finding another such winner in this environment.

Quick Read

• Celsius (CELH) reported Q3 revenue of $725M with 173% year-over-year growth and gross margins exceeding 51%.

• Celsius stock trades at a forward P/E of 26 times despite strong earnings momentum.

• The company’s acquisition of Alani Nu continues to drive portfolio growth.

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That said, there are a handful of growth stocks I've continued to follow that I now think could provide that kind of upside. These are companies that have valuations that have actually come down during this recent surge in AI enthusiasm, as capital flows away from these names and into the tech sector have provided a unique buying opportunity.

Here's why I think Celsius (NASDAQ:CELH) is one such top-tier opportunity right now.

Impressive Growth Supports a Higher Valuation

Stacks of gold coins growing, with a green arrow pointing up and to the right

Celsius' past performance is truly a thing of beauty. Trading around $1 per share in 2019 (right before the pandemic), shares of CELH stock soared to an all-time high around $100 per share last year.

However, since then, shares of this top energy drink maker have declined to around the $40 level. That means that a good chunk of the company's future growth which was priced in last year has since been taken out of its valuation. And notably, this decline has come as interest rates have dropped, which should have provided some tailwinds for a stock like Celsius.

What's a head-scratcher to me is that Celsius' recently-reported Q3 earnings showed incredibly strong revenue growth. The company's $725 million top-line revenue surged 173% on a year-over-year basis with gross margins surging to more than 51%. For any company in the market, including a plethora of tech stocks, those are good numbers.

Perhaps even better was the company's EPS growth to $0.42 for the quarter, beating consensus estimates by nearly 50%. And while M&A integration costs led to a GAAP net loss, the company's acquisition of Alani Nu has driven continued strong growth within this company's portfolio of quality brands.

I think more growth is on the way, and with a forward price-earnings ratio of just 26-times, it's hard to make the argument that CELH stock is overpriced here.

Strong Structural Growth Drivers

Image of a warehouse

Now, in order for this growth to continue, investors need to believe that Celsius will not only be able to benefit from continued increases in energy drink consumption, but that the company will become a dominant force in this sector which features other notable competitors.

Celsius has done a great job of maintaining this market share, and has done so by transforming its model from being a niche health-focused offering to a platform with a powerful distribution profile. Doing so has allowed Celsius to soak up shelf space among key retailers, and grow its awareness without spending incredible sums on advertising like many of its peers.

With some of the best logistics and distribution in the sector, I think the comapny's ability to partner with top retailers in North America and around the world should provide the sort of structural growth capacity long-term investors are after.

Celsius is by far a "fad" or "story" stock. This is a company that appears to have durable growth drivers I think can drive outperformance for decades to come.

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