Lululemon Athletica (Nasdaq: LULU) and Celsius Holdings (Nasdaq: CELH) are two consumer brands that have been hugely popular for years. Both stocks have performed well over the past few years but have seen significant sell-offs this year.
Let’s take a look at why these stocks were sold off and why they are likely to rebound strongly later this year.
1. Celsius Holdings
Energy drink maker Celsius has been a big hit for the past five years, up until late May. Beverage inventory Suddenly, the company’s stock price fell by nearly half from its all-time high.
The company’s success stems from carving out an attractive niche in the energy drink market by appealing to customers with a less aggressive aesthetic: differentiated flavors such as Peach Vibe, sugar-free options in high-sugar categories, slimmed-down cans and subdued marketing messaging. PepsiCo Meanwhile, in 2022, it gained widespread distribution across retail outlets, especially in the important convenience store channel.
But after three consecutive years of revenue growth of over 100%, growth is unsurprisingly starting to slow. The company is now virtually entirely distributed in the United States. Revenue growth in the first quarter was a strong 37%, but that was a significant slowdown from the 95% sales growth in the fourth quarter. Meanwhile, data from tracking channel Nielsen shows that growth has been slowing week on week, dropping to 13% in the last week of June, although the comparison was affected by the timing of the July 4th holiday.
Despite slowing growth in tracked channels, Celsius still has plenty of opportunities that could help the stock recover this year and beyond. International growth is a big opportunity for the company; it has only just entered the UK and Australian markets and is barely getting started in terms of service penetration. There is also an opportunity to grow in untracked channels by increasing the number of items per store and improving cooler placement.
It trades at less than 35 times its 2025 earnings estimates. Price to Earnings Growth (PEG) At a multiple of 1, the stock is attractively valued as a growth stock with plenty of upside ahead. If the company can expand internationally and capture a similar niche market as it has in the U.S., the stock should perform well in the long term.
2. Lululemon Athletica
Lululemon shares have had a tough year, dropping more than 40% so far this year, as investors worry about growing competition from newcomers like Alo and Vuori and changing fashions. Cautious comments about the U.S. consumer when the company reported fourth-quarter earnings in March and the departure of its chief product officer in May only added fuel to the fire.
Last quarter, the company saw flat same-store sales in the U.S. but a 29% increase in international same-store sales helped drive overall same-store sales growth of 7% and overall revenue growth of 10%.
International expansion remains one of Lululemon’s biggest opportunities, and so far the brand seems to be resonating with international customers, but the company also has the ability to reinvigorate growth in the North American market through product innovation and category expansion.
The brand appears to continue to perform well, and a recovery in the U.S. consumer and a strong back-to-school season could also signal growth. The back-to-school shopping season is off to a strong start, Adobe The analysts said: Amazon Sales of children’s clothing rose 165% on Prime Day, while back-to-school items like backpacks and school supplies increased 216%. Other data from the National Retail Federation, such as container ship volumes in May and strength in retail activity in June, also point to a strengthening retail environment.
With a forward price-to-earnings (P/E) ratio of less than 18 times based on 2025 estimates, Lululemon is trading at its cheapest valuation in history.
Given its valuation, future business opportunity, and a potentially strong back-to-school shopping season, this apparel stock is poised for a strong recovery in the second half of the year and beyond.
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John Mackey, former CEO of Amazon subsidiary Whole Foods Market, is a member of The Motley Fool’s board of directors. Jeffrey Saylor The Motley Fool has no investment in any of the stocks mentioned. The Motley Fool owns shares of and recommends Adobe, Amazon, Celsius and Lululemon Athletica. The Motley Fool has no investment in any of the stocks mentioned. Disclosure Policy.
Two growth stocks that could soar in 2024 and beyond Originally published on The Motley Fool
