The market is digesting its latest earnings and acquisition of competitor Alani Nu.
Shares of Celsius Holdings (CELH -1.15%) sank over 20% this week, according to data from S&P Global Market Intelligence. The once fast-growing energy drink brand is now going through a rough patch.
Revenue growth has slowed in recent quarters. Now, the company is making a big acquisition of Alani Nu, an energy drink brand gaining a lot of market share at the moment, which it announced in conjunction with its Q4 earnings.
Last week, Celsius stock popped on the news, but it has now given up most of these gains and sank over 20% this week. Here’s why Celsius stock is falling, and whether the stock is a buy for your portfolio today.
A surprise merger
Let’s talk briefly on Celsius’s Q4 earnings. Revenue in the fourth quarter dropped 6% in North America, which was expected after its large distributor PepsiCo reduced its inventory. The brand still has sizable market share in energy drinks, but is currently not taking share as it did in the past. International revenue is growing quickly, with 39% growth last quarter, but still only makes up a tiny part of the Celsius business.
More importantly, Celsius announced it would be spending $1.8 billion to acquire Alani Nu and bringing it under the Celsius umbrella. Alani Nu is another health-focused energy drink brand with sugar-free offerings. In recent quarters, it has been growing much faster than Celsius in North America, which has likely eaten into Celsius’ market share gains.
The deal will be financed with debt and stock and hopefully will close soon. According to management’s presentation for investors, Alani Nu is growing 50% year over year and generated $173 million in adjusted earnings in 2024, meaning the company is acquiring the brand for barely over 10x its trailing earnings.
At first glance, this looks like a cheap deal. But after digesting the news, investors are souring on Celsius stock. Spending $1.8 billion to stem off a competitor does not mean the Celsius brand is operating from a position of strength at the moment, and indicates that the energy drink category is getting more and more competitive for brands at the moment.
Should you buy Celsius stock?
Today, Celsius stock trades at a market cap of $6 billion. To simplify things, let’s say that after the acquisition, Celsius’ market value will be $7.8 billion by adding on the acquisition price (the actual numbers are slightly more complicated, but this gets us most of the way there).
Combined, Celsius and Alani Nu should generate around $2 billion or more in sales in 2025. This does not look like an overly expensive stock if you assume that margins will march higher and growth will return for the Celsius brand in the next few years.
For investors who believe in this combined company and the potential for growth in sugar-free energy drinks, now could be a good time to buy Celsius stock.
Brett Schafer has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Celsius. The Motley Fool has a disclosure policy.
