I last pitted the investment case for energy drink giant Monster Beverage (NASDAQ: MNST) against that of health-focused challenger Celsius Holdings (NASDAQ: CELH) a couple of months ago. At the time, Monster stock looked robust but overpriced, while Celsius struck me as a risky but promising idea. Of the two, only the rather speculative Celsius idea seemed worthy of an actual investment — with the understanding that it could go very wrong, too.
Ten weeks later, both companies have reported fresh quarterly results and their stocks have made significant moves. Is Celsius still the risky winner, or has Monster earned my stamp of approval this time?
First, let’s consider how the two energy drink makers fared in the third quarter of 2024.
Celsius fell short of analysts’ consensus estimates on both the top and bottom lines. Earnings fell to breakeven from $0.89 per share in the year-ago period while revenues dropped 6.8%. Retail sales showed solid growth, including a 15% increase in Celsius sales at Costco (NASDAQ: COST) and a 21% sales jump at Amazon (NASDAQ: AMZN). However, key distribution partner PepsiCo (NASDAQ: PEP) reduced the amount of warehoused Celsius drinks to a painful degree.
Monster didn’t do much better. Revenues rose 1% year over year while earnings per share shrank from $0.43 to $0.40. Both figures were slightly below Wall Street’s consensus estimates. Management pointed to “excess inventory levels” of alcohol-infused Monster drinks, which suggests slower sales of those products than expected. Monster also took a significant revenue hit from the ongoing hyperinflation in Argentina, which highlights the risks of running a global business.
Monster investors took the somewhat disappointing news in stride. The stock dipped slightly in the trading session that followed the release, but more than recovered by the end of that week. By contrast, Celsius (which published its report one day earlier) saw share prices fall 9% from one Monday to the next. Three weeks later, Monster has traded slightly higher alongside the S&P 500 (SNPINDEX: ^GSPC) index, but Celsius’ stock is still down.
The same charting trends have been active since my September analysis, too. Celsius stock is down 17% since then while Monster and the broader market both rose by roughly 5%.
All in all, not much has changed for Monster. The company performed largely as expected in the third quarter, and the stock is still trading at rather lofty valuation ratios.
At the same time, Celsius underperformed expectations to a greater degree, but its share price sank much further as a result. At the moment, Celsius’ price-to-earnings and price-to-free-cash-flow ratios are comparable to Monster’s, but the smaller company should grow faster in the next few years. Pepsi’s big inventory correction is now in the past, and Celsius’ year-over-year comparisons will be more favorable in 2025.
I’m still not thrilled about the idea of buying Monster stock since the shares continue to feel overpriced. Celsius, on the other hand, trades at a fairly large discount compared to its valuations in September, and its health-oriented energy drinks are still in high demand. At first blush, that would suggest a slam-dunk win for Celsius.
However, Celsius is still a speculative bet on changing consumer habits, and Monster has a history of overcoming strong challengers. Bang Energy, which blends workout-boosting ingredients into its energy drinks, was a serious threat to it for a while. However, after a legal battle that drove Bang’s parent company, Vital Pharmaceuticals, into bankruptcy, Monster now owns and sells that brand, too.
There are no easy answers here. With the benefit of hindsight, I’m glad I didn’t wholeheartedly recommend Celsius Holdings stock in September. If you’re in a speculative mood, you could pick up a few shares for a 17% lower price today and hope for a sales-growth rebound and solid results in the long run.
Otherwise, you could pop open a can of your favorite energy drink and join me on the sidelines. Maybe this isn’t the best time to buy energy drink stocks at all.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Anders Bylund has positions in Amazon. The Motley Fool has positions in and recommends Amazon, Celsius, Costco Wholesale, and Monster Beverage. The Motley Fool has a disclosure policy.
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