Is Celsius Stock a Buy After Falling 49% From Its 52

Shares of energy drink maker Celsius Holdings (NASDAQ: CELH) have taken a severe hit recently. Down a staggering 49% from its 52-week high of $66.74, the stock is currently trading at about $34 per share as of this writing. Much of the recent pressure on the stock stems from news that wholesale giant Costco recently launched a private-label Kirkland Signature energy drink. The new product is priced significantly lower than Celsius, sparking fears of intensifying competition and prompting a sharp sell-off in the stock over the past week. Will AI create the world's first trillionaire? Our team just released a report on the one little-known company, called an "Indispensable Monopoly" providing the critical technology Nvidia and Intel both need. Continue » The Costco news highlights the competitive environment of the beverage space. But it's not the primary reason I'm cautious. The real issue keeping me on the sidelines today is valuation. Even after the stock has been nearly cut in half, its valuation may still reflect too much optimism. Ruthless competition Of course, the stock commands a premium valuation for a reason. The company's fourth-quarter revenue came in at $722 million, up from $332.2 million in the year-ago quarter -- but with the help of some acquisitions. The company acquired Alani Nu on April 1 and the Rockstar Energy on Aug. 28. Its acquisition of Alani Nu has been particularly successful. Management noted in the company's fourth-quarter earnings call that Alani's fourth-quarter net sales of $370 million represent 136% year-over-year growth on a pro forma basis. However, growth in the beverage industry is rarely uncontested. The recent news of Costco introducing its own Kirkland Signature energy drink -- priced about 55% lower than Celsius products -- is a stark reminder of the challenges ahead. While Costco accounted for only about 11% of Celsius's total sales last year, Costco's move offers a reminder that competition in the energy drink space is intense. If more retailers or other deep-pocketed competitors push aggressively into the category, Celsius could face pricing pressure, which, of course, would negatively impact its profit margins. Indeed, we saw a glimpse of margin pressure in Q4, when the company's gross profit margin declined to 47.4% from 50.2% in the year-ago quarter. But this contraction was driven largely by integration and distribution costs associated with its recent acquisitions. Still, this is a key metric investors will be watching going forward.