Why Celsius Holdings Stock Crashed 10% on Monday

Earnings season is upon us, and up on Wall Street analysts are placing their bets for who will beat — and who will disappoint investors this quarter. That’s apparently bad news for investors in Celsius Holdings (CELH -10.64%). This morning, TD Cowen analyst Robert Moskow warned investors to lower their expectations for the energy drink maker, and cut his price target by 20%, to $68 a share.

Celsius stock is down 10.7% in response as of noon ET.

What TD Cowen said about Celsius

What’s the matter with Celsius, the business? Nothing really, according to Cowen. Rather, the problem is with investors who’ve gotten too excited over Celsius’ prospects in an economy that’s seeing more cautious consumer spending. As the analyst reminds, Pepsico just finished reporting disappointing second-quarter earnings, in which the only sales growth came from price increases, and sales volumes grew not at all.

This doesn’t bode well for other drink makers like Celsius. Moskow notes that sales are continuing to slow, and warns today in a note covered on The Fly that “consensus estimates for FY24 and FY25 sales are too high given the continued deceleration in sales growth.” If he’s right about that, it means profit projections are probably too high as well — and also, predictions of how high Celsius stock will fly.

Is Celsius stock a buy?

We’ll have to wait until Celsius reports earnings early next month to find out whether Moskow is correct, of course. But already things are not looking great. Most analysts forecast that Celsius will earn $1.08 per share this year, implying a current-year P/E of 48 on the stock. That’s pretty expensive given consensus forecasts of 22% sales growth this year. And if Celsius misses estimates, it will mean the stock is even more expensive than it already looks.

How much might Celsius end up costing? 50 times earnings? 55? And on an even slower growth rate? I have to admit, those valuations don’t look great to me. Investors selling Celsius stock today may be making the right call.

Rich Smith 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.