One analyst tracking the fortunes of Celsius Holdings (NASDAQ: CELH) is no longer enjoying the taste of the stock. He downgraded his recommendation on the natural ingredients energy drink maker, compounding that with a rather drastic price target cut. Is it time for investors to bail from the stock?
Losing its fizz?
In an update on the stock published toward the end of April, CFRA's Garrett Nelson changed his Celsius recommendation from "buy" to "sell," bypassing the middle-ground "hold" tag entirely. Accordingly, he made a significant reduction to his price target, from $45 per share all the way down to $30. Based on the new price target, he anticipates a nearly 20% price decline from the stock's current level of about $36.
According to reports, Nelson feels the stock's rally over the past few months -- after coming under heavy selling pressure before that -- has made its risk/reward profile unappealing. The analyst also expressed concern over the notable decline in short interest recently. In his view, this makes it less vulnerable to a price-boosting short squeeze.
As for Celsius' fundamentals, Nelson acknowledged the company's high gross margins and robust balance sheet. Yet, he wrote, there are concerns about organic revenue development, a key reason why he prefers stocks in the beverage sector that are more defensive, have a broader international profile, and pay relatively high dividends.
Better to wait
The CFRA prognosticator certainly raises several solid points about Celsius, both positive and negative. I don't share his bearishness about the company, given what I consider to be its above-average fundamentals for a beverage company, and its nimble top management team.
Then again, though, it was over-bought during the pandemic's height, and to some degree the market is still trying to figure out a fair price for the stock. Given that, I'd wait some time for that level to settle before deciding if it's truly a bargain.
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Eric Volkman 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.
