The Price Is Right For Celsius Holdings, Inc. (NASDAQ:CELH) Even After Diving 26%

To the annoyance of some shareholders, Celsius Holdings, Inc. (NASDAQ:CELH) shares are down a considerable 26% in the last month, which continues a horrid run for the company. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 10% in that time.

In spite of the heavy fall in price, given around half the companies in the United States' Beverage industry have price-to-sales ratios (or "P/S") below 2.7x, you may still consider Celsius Holdings as a stock to avoid entirely with its 7x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/S.

View our latest analysis for Celsius Holdings

What Does Celsius Holdings' P/S Mean For Shareholders?

With revenue growth that's superior to most other companies of late, Celsius Holdings has been doing relatively well. It seems that many are expecting the strong revenue performance to persist, which has raised the P/S. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Keen to find out how analysts think Celsius Holdings' future stacks up against the industry? In that case, our free report is a great place to start.

Do Revenue Forecasts Match The High P/S Ratio?

There's an inherent assumption that a company should far outperform the industry for P/S ratios like Celsius Holdings' to be considered reasonable.

If we review the last year of revenue growth, the company posted a terrific increase of 81%. This great performance means it was also able to deliver immense revenue growth over the last three years. Accordingly, shareholders would have been over the moon with those medium-term rates of revenue growth.

Shifting to the future, estimates from the analysts covering the company suggest revenue should grow by 24% per year over the next three years. Meanwhile, the rest of the industry is forecast to only expand by 5.0% per annum, which is noticeably less attractive.

With this in mind, it's not hard to understand why Celsius Holdings' P/S is high relative to its industry peers. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Bottom Line On Celsius Holdings' P/S

Even after such a strong price drop, Celsius Holdings' P/S still exceeds the industry median significantly. Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

Our look into Celsius Holdings shows that its P/S ratio remains high on the merit of its strong future revenues. At this stage investors feel the potential for a deterioration in revenues is quite remote, justifying the elevated P/S ratio. Unless the analysts have really missed the mark, these strong revenue forecasts should keep the share price buoyant.

You always need to take note of risks, for example - Celsius Holdings has 1 warning sign we think you should be aware of.

If you're unsure about the strength of Celsius Holdings' business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com