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Jim Cramer comments on Celsius Holdings (CELH): Confusion over sales decline

We recently published Jim Cramer's exclusive list: 10 stocks to keep an eye on. In this article, we take a look at Celsius Holdings Inc. (NASDAQ:CELH)'s position compared to Jim Cramer's other stocks to watch.

In a recent episode of Mad Money, Jim Cramer expressed his frustration with analysts who try to explain stock movements during each trading session without acknowledging the unpredictability of the market and those who trade stocks for a living. He pointed out that the Dow gained 125 points, the S&P gained 1.07% and the NASDAQ gained 2.17%, but those gains were the result of conflicting market perceptions. In the end, only one view can hold, and the next day the process starts all over again.

“Okay, look, it keeps happening and it's starting to drive me even crazier than I already am. I'm talking about analysts who try to explain why stocks do what they do in a given session without taking into account the capriciousness, if not insanity, of those who trade stocks for a living.

Sure, the averages seem to tell a good story. The Dow Jones climbed 125 points, the S&P 1.07 percent, and the NASDAQ 2.17 percent, but these percentages are the result of a bitter battle between competing visions of reality. And only one vision can survive.

Cramer explained that an important, if not groundbreaking, Consumer Price Index (CPI) report was released that day, just days before an expected Federal Reserve rate cut. Given the high market tensions, the CPI data surprised no one. Cramer pointed out, however, that despite the CPI meeting expectations, stock futures remained in the red earlier in the day. When the market opened, stocks continued to fall, confusing commentators. Some analysts attributed the sell-off to disappointment over the possibility of a rate cut of just a quarter of a percentage point rather than half a percentage point. Cramer was shocked by this statement, calling it inaccurate.

“Only a vision can withstand scrutiny before it all starts over again the next morning. Today, as on many days, we got a set of pretty crucial numbers from the government. This time it was the consumer price index. Note that I said 'pretty' crucial because we are now just days away from the Fed's Open Market Committee meeting, where we will likely get a rate cut. Any meeting between now and then could be an outlier that could change the Fed's fundamental stance.

If you're in Fed mode like we are, you know tensions are rising. So it was good to see a CPI reading that was essentially in line — nothing major, nothing shocking, just a number we all expected. So we're probably going to get the quarter-percentage-point rate cut we were hoping for. But then various speakers and interviews started trying to find reasons why the Dow had fallen more than 700 points in the first hour of trading and the NASDAQ had lost 1.5%.

The preachers were beside themselves. After a few attempts, they settled on a new narrative that we had to listen to for a few hours. Many people had bet on a half-percentage point rate cut, they said, and that 2.5% inflation rate made a double rate cut very unlikely. We were told that this led to disappointment and then to angry stock selling.”

Jim Cramer mentioned a previous interview with Toll Brothers CEO Doug Yearley, who had a positive view of the housing market and expected it to continue to improve if interest rates were cut. Cramer believed that the upcoming rate cuts could spark a housing boom that would benefit the overall economy. Cramer and his colleague Jeff Marks shared this view and expressed their confusion about the market's decline during their show on CNBC Investing Club. Cramer even predicted that averages could end the day higher, but that did not happen.

“Now I was appalled. Can I just say? I was appalled by this blanket permissiveness towards the truth. I had just come from an interview with Doug Yearley on Screaming on the street. He told me business was very good in August and September and could only get better as prices dropped. Doug is an honest man who doesn't talk a lot of blabber, but basically he said, “Watch out if prices drop any further from here.”

He was effusive and empirically positive about the coming rate cuts. He and I both study financial history, and these 25 basis point rate cuts could boost residential real estate sales. That's huge for our country's economy, even though the housing sector is only 10% of the economy. It's connected to so many other areas that I always like to say it punches above its weight class. So I thought it was time to commit heresy.”

Cramer criticized the notion that the market decline was due to disappointment over the CPI numbers, calling it “nonsense.” He argued that sellers had misjudged the situation and misunderstood the potential power of rate cuts. In his view, there is no harm in calling out irrational behavior in the market and declaring that sellers in this case are clueless. He rejected the idea of ​​inventing justifications for market actions, especially when they obviously made no sense.

“I predicted that the average might actually rise, but that didn't happen. I refused to appreciate the reasoning of commentators who clung to the fiction that bulls were disappointed with the CPI reading. I knew the early action was just nonsense. Moreover, I knew the sellers were wrong.

What's wrong with being honest and saying that the sellers are clueless and don't understand the power of rate cuts? Why can't I do that? Where does it say we must always be descriptive and not judgemental? I have no desire to make things up to validate, if not justify, the action on any given day, especially when the action is so obviously wrong and nonsensical.”

Our methodology

This article is about a recent episode of Jim Cramer's Mad Money where he highlighted several stocks. We selected ten of these companies and analyzed the hedge fund investments in each of them. Finally, we sorted the companies by hedge fund ownership, from smallest to largest.

At Insider Monkey, we are obsessed with the stocks that hedge funds invest in. The reason is simple: Our research has shown that we can outperform the market by mimicking the top stock picks of the best hedge funds. Our quarterly newsletter's strategy selects 14 small-cap and large-cap stocks each quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (Further details can be found here).

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20 countries with the lowest alcohol consumption per capita

A hand pours a cool can of a carbonated soft drink with a smiley face on it.

Celsius Holdings Inc. (NASDAQ:CELH)

Number of hedge fund investors: 27

Jim Cramer commented that Celsius Holdings Inc. (NASDAQ:CELH) is confusing for investors. He noted that while CEO John Fieldly made a compelling case for Celsius Holdings Inc. (NASDAQ:CELH) in an interview, the stock has continued to fall. Cramer does not believe this decline necessarily indicates major problems. In addition, he pointed out that sales have not met expectations according to feedback from retailers and Amazon.com, Inc. (NASDAQ:AMZN), which could explain the downward pressure on Celsius Holdings Inc. (NASDAQ:CELH).

“Celsius has caused tremendous confusion. John Fieldly, the CEO, came on the show and told a great story, and yet it's just downhill, downhill, downhill. But that doesn't necessarily mean there's something wrong, although it's hard to figure anything out between the relationship with PepsiCo, Inc. (NYSE:PEP) and Rockstar, and I think that could have a lot to do with the decline. But also sales have not been as good as expected, from what we know from talking to clubs and of course Amazon.com, Inc. (NASDAQ:AMZN).”

Celsius Holdings Inc. (NASDAQ:CELH) is a strong investment option due to its impressive financial performance, growing market presence, and strategic positioning in the energy drink sector. In the second quarter of 2024, Celsius Holdings Inc. (NASDAQ:CELH) reported a 23% increase in revenue to $402 million, driven by a 30% increase in international sales and a 32% increase in gross profit, which now accounts for 52% of revenue. Celsius Holdings Inc. (NASDAQ:CELH) also reported a 29% increase in non-GAAP adjusted EBITDA and a 55% increase in net income, reflecting its operational efficiency and strong profitability.

Despite intense competition, Celsius Holdings Inc. (NASDAQ:CELH) stands out in the energy drink market thanks to its growing international presence and innovative product offerings, including new flavors and product lines. Its partnership with PepsiCo, Inc. (NYSE:PEP) expands its market reach even further. Although the stock has a high P/E ratio of 43.49, its strong earnings growth and future revenue potential suggest it could still be a good investment.

Alger Small Cap Growth Fund stated the following about Celsius Holdings, Inc. (NASDAQ:CELH) in its second quarter 2024 investor letter:

“Celsius Holdings, Inc. (NASDAQ:CELH) is engaged in the development, marketing, sale and distribution of functional beverages and liquid nutritional supplements. It also offers functional post-workout energy drinks and protein bars. During the quarter, shares negatively impacted performance after the company reported revenue below analyst estimates for the fiscal first quarter. The revenue decline was attributed to ongoing inventory management issues at PepsiCo, which slowed year-over-year revenue growth from over 100% to about 37%. Despite the near-term growth slowdown, we believe Celsius remains well positioned to potentially gain market share in the large energy and soft drinks industry over the long term.”

Total CELH 8th place on Jim Cramer's list of stocks to watch. While we recognize CELH's potential as an investment, we believe some AI stocks promise higher returns and do so in a shorter time frame. If you're looking for an AI stock that's more promising than CELH but trades at less than 5x earnings, read our report on the cheapest AI stock.

READ MORE: $30 trillion opportunity: The 15 best humanoid robot stocks to buy, according to Morgan Stanley And According to Jim Cramer, NVIDIA has “become a wasteland”.

Disclosure: None. This article was originally published on Insider Monkey.

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