Time to Trim Profits on Celsius Holdings (NASDAQ: CELH) Stock

Fitness beverage maker Celsius Holdings, Inc. NASDAQ: CELH stock has been on a tear with one-year performance spiking north of 900%. Shares were trading in the low $20s when highlighted on MarketBeat in October 2020. Shares have more than doubled since then with the recent announcement of inclusion into the S&P 600 Small-Cap index on Jan. 7, 2021. This has created not only a surge in prices but also an abundance of liquidity as ETF funds chase shares in this typically thin trading stock. The thesis of top and bottom line improvement for Celsius Holdings as COVID-19 vaccine rollouts accelerate in 2021 is still intact, especially with gym re-openings. However, valuations may have gotten overextended on the S&P inclusion announcement. Prudent investors who took positions may want to unwind positions into opportunistic exit levels to lock in profits into the abundant liquidity while it lasts, as average volume will inevitably fall again.

Q3 FY 2020 Earnings Release

On Nov. 12, 2020, Celsius Holdings released its third-quarter fiscal 2020 results for the quarter ending September 2020. The Company reported non-GAAP earnings-per-share (EPS) profit of $0.06 excluding non-recurring items versus consensus analyst estimates for a profit of $0.02), beating estimates by $0.04. Revenues rose 80% year-over-year (YoY) to $36.84 million beating analyst estimates by $3.84 million. North American revenues grew 60% YoY to $26.9 million driven by 111% YoY growth in ecommerce sales which off-set its Fitness channel sales down (-23%). The Fitness Channel, composed of in-gym drink sales, was hit hard due to gym closures as COVID-19 restrictions continued to hamper reopening. International revenues grew 172% YoY to $10 million. Year-to-date (YTD) revenues are up 86.3% at $95.1 million. YTD gross profits are up 105% YoY. The CELSIUS continues to grow faster than the category with 44% YTD growth in U.S. convenience stores exceeding over 79,000 retailing locations.

Conference Call Takeaways

Celsius Holdings CEO, John Fieldly, provided updates on the conference call. The Company saw continued improvements in Q3 with capacity restrictions and reopening of distribution channels. However, CEO Fieldly noted, “uncertain as there potentially could be re-closings with additional cases and increased in our regions of operation and extended closures in some states and counties.” In addition to COVID-19, he noted that, “the entire beverage industry is now being impacted by aluminum can shortage taking place in the United States. The impact is across the board with major bottlers recently accounting a material shortfall for cans for 2021 and many smaller brands are being turned away.” This poses potential problems with suppliers as they indicated they could fulfill the base needs for 2021 but “do not expect to be able to fulfill our expected growth from our internal projections.” However, the Company has been able to source them outside the U.S. but will see an increase in cost of goods throughout 2021. The Company has been building out its direct store distribution (DSD) network to 147 regional partners covering 75% of major metropolitan markets in the U.S. This has resulted in a 100% increase in the number of stores services by the DSD with an additional 30% expected in Q4 2020 through 2021. The exclusive launch of Kiwi-Guava-Lime flavor On-The-Go stick powders in 2,700 Walmart NYSE: WMT locations drove significant growth along with the 1200 Publix throughout Europa. Over 1200 Target NYSE: TGT stores transitioned to DSD. The growth in CELSIUS drinks offset the slowdown in FAST protein snacks but sees a rebound in Q4.

Sell-The-News?

The surprise announcement on Dec. 30, 2020 to add Celsius Holdings shares to the S&P 500 Small-Cap index was a shock to the short-sellers triggering a massive island gap the next morning as volume exploded over six-times average. The added liquidity and the price gap is a gift for investors to trim down some exposure into the liquidity. There’s not doubt the Company is experience the early stage growth in the backdrop of a global pandemic. As the economies recover with the vaccine rollout, the Fitness Channel should also recover as well as the fitness snacks. However, the shares are potentially overheated and prudent investors may want to trim some profits at opportunistic exit levels while the liquidity lasts.

 CELH Opportunistic Exit Levels

Using the rifle charts on the weekly and daily time frames provides a precision near-term view of the landscape for CELH stock. The weekly rifle chart has been in a powerful uptrend driven by the stochastic mini pup at the 90-band. The weekly 5-period moving average overlaps with the $41.07 Fibonacci (fib) level. Shares peaked off the $52.20 fib falling back under the weekly upper Bollinger Bands at $51.87. The daily rifle chart formed a pup breakout but the island gap on the S&P 600 Small-Cap inclusion announcement formed a spinning top/island gap as the stochastic potential forms a mini inverse pup. The potential pullback to the weekly and daily 5-period MA levels are at $41.03 and $44.42, respectively. Rather than risk a 6-to-10 point pullback, prudent investors can use the gap to trim down at opportunistic exit price levels ranging from the $53.94 fib to the $47.89 fib range with a profit stop at the $46.06 fib to avoid a full tightening move lowering. Prudent investors should always consider cashing in some profits into strength, not the other way around chasing exits during weakness.