Key insights
- The author argues Celsius (CELH) is significantly overvalued due to its high PE ratio relative to competitors and unsustainable growth assumptions. Rising distribution costs from high diesel prices, increased competition from Costco's cheaper alternative, and the burden of a $700 million loan for the Alani Nu acquisition are expected to negatively impact Celsius's profit margins and cash flow. The author predicts a substantial stock price correction is likely as the market recognizes these challenges.
Celsius energy drinks is valued as if it's crude oil that isn’t trapped behind the straight of Hormuz. Its PE is currently sitting at 136, while its most direct competitor Monster energy is in the upper 30’s. Water is heavy and it is expensive to move. Energy drinks are the definition of a high-mass, low-value-density product. With crude oil in the triple digits for the foreseeable future, diesel costs will continue to go parabolic and profit margins for Celsius are going to get crushed just from the distribution costs. CELH’s balance sheets for 2025 showed an Earnings Per Share (EPS) of $0.25, representing a terminal contraction of -45.7% from the $0.46 EPS recorded in 2024, so growth has been slowing even before the stagflationary implosion to be caused by the Iran war.
I don’t think that passing that extra cost onto the consumer will work all too well either, who’s going to spend 6+ dollars on sparkling water when they’re worried about layoffs and gas is at 6 dollars? To make matters even worse, just a couple weeks ago Costco began selling an identical product of 24 pack selling for 0.70 per can, while Celsius 24-pack sells for 1.58. Who is going to pay >2x for an identical drink in this economy?
And to top it all off, Celsius recently took out a $700 million loan to buy Alani Nu. In a world with high inflation and high interest rates, paying the interest on that massive debt is going to bleed their cash flow dry exactly when they can least afford it. This thing is currently priced like a hyper-growth miracle. Once the market wakes up and realizes it is just a regular beverage company carrying heavy debt and slowing sales, I think this thing will aggressively correct to match normal drink companies. Just to reach a normal, fair valuation, the stock price has to drop by another 70% to 75%.
Positions: 20 strike Dec 18th 2026 puts
(I think it’s worth it to pay a little extra to get 2 full quarters for the evisceration of their revenue/costs to be fully realized)