Why We're Not Concerned Yet About Celsius Holdings, Inc.'s (NASDAQ:CELH) 32% Share Price Plunge

Celsius Holdings, Inc. (NASDAQ:CELH) shareholders won't be pleased to see that the share price has had a very rough month, dropping 32% and undoing the prior period's positive performance. Still, a bad month hasn't completely ruined the past year with the stock gaining 52%, which is great even in a bull market.

In spite of the heavy fall in price, you could still be forgiven for thinking Celsius Holdings is a stock to steer clear of with a price-to-sales ratios (or "P/S") of 5x, considering almost half the companies in the United States' Beverage industry have P/S ratios below 2.1x. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so lofty.

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Check out our latest analysis for Celsius Holdings

What Does Celsius Holdings' Recent Performance Look Like?

With revenue growth that's superior to most other companies of late, Celsius Holdings has been doing relatively well. It seems the market expects this form will continue into the future, hence the elevated P/S ratio. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Celsius Holdings.

How Is Celsius Holdings' Revenue Growth Trending?

Celsius Holdings' P/S ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the industry.

Retrospectively, the last year delivered an exceptional 55% gain to the company's top line. The strong recent performance means it was also able to grow revenue by 267% in total over the last three years. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Turning to the outlook, the next three years should generate growth of 22% per year as estimated by the analysts watching the company. That's shaping up to be materially higher than the 4.2% per year growth forecast for the broader industry.

With this in mind, it's not hard to understand why Celsius Holdings' P/S is high relative to its industry peers. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

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

Even after such a strong price drop, Celsius Holdings' P/S still exceeds the industry median significantly. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

Our look into Celsius Holdings shows that its P/S ratio remains high on the merit of its strong future revenues. It appears that shareholders are confident in the company's future revenues, which is propping up the P/S. Unless the analysts have really missed the mark, these strong revenue forecasts should keep the share price buoyant.

Before you take the next step, you should know about the 3 warning signs for Celsius Holdings that we have uncovered.

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.