The Best Non-Tech Growth Stories In The Market

Successful hypergrowth investment stories are usually confined to tech companies. But there are two areas that, occasionally, breed companies that show equal, if not better, growth rates: consumer brands and healthcare pharmaceuticals.

Eli Lilly and Celsius Holding are the two current best non-tech growth stories in the market from these two areas. I own both stocks for the long run (I do not trade them; I keep them).

Eli Lilly may soon replace Tesla in the Mag-7 elite club

The American diet is simply the most terrible eating habit you can follow. It is based on ultra-processed foods with plenty of sugar and saturated fats everywhere. A silent killer that reduces the average healthspan and lifespan by about ten years.

As a consequence, the U.S. Food and Drug Administration just reported that around 70% of American adults are either obese or overweight.

1987: every state has obesity rates under 15%, 2021: every state has obesity rates over 25%. This drives all the typical top chronic diseases such as diabetes. The cause? In my opinion - an ultra-processed food industry that misleads the consumers for profit. It's about what's in the food.

From Pew Research Center:

https://www.pewresearch.org/short-reads/2016/12/13/whats-on-your-table-how-americas-diet-has-changed-over-the-decades/

Broadly speaking, we eat a lot more than we used to: The average American consumed 2,481 calories a day in 2010, about 23% more than in 1970. That’s more than most adults need to maintain their current weight, according to the Mayo Clinic’s calorie calculator. (A 40-year-old man of average height and weight who’s moderately active, for instance, needs 2,400 calories; a 40-year-old woman with corresponding characteristics needs 1,850 calories.) Nearly half of those calories come from just two food groups: flours and grains (581 calories, or 23.4%) and fats and oils (575, or 23.2%), up from a combined 37.3% in 1970.

The United States has grown fat very quickly. It took less than 35 years for the obesity levels to more than double. This high prevalence has fueled the demand for weight-loss medications from pharmaceutical companies like Eli Lilly & Company (LLY) and Novo Nordisk (NVO), who are struggling to meet this surge in demand.

GLP-1 agonists to fight obesity

These companies have developed a new category of weight loss drugs, GLP-1 agonists, which require consistent use for effective results. Analysts at J.P. Morgan predict that sales of these drugs could surpass $100 billion by 2030, indicating a promising market.

Once considered a less dynamic player in the pharmaceutical industry, Eli Lilly has significantly benefited from these developments. Despite experiencing a decline in revenue from 2011 to 2019 and facing challenges such as patent expirations, Lilly has made a remarkable turnaround. It is now the world's most valuable drugmaker, surpassing Johnson & Johnson and even Tesla in market capitalization, with a valuation nearing $700 billion.

Tirzepatide, Mounjaro, Zepbound and Retatrutide

This turnaround is primarily attributed to tirzepatide, a drug initially approved for type 2 diabetes under the brand name Mounjaro. It was also prescribed off-label for weight loss before receiving FDA approval for obesity treatment under the name Zepbound in November.

Zepbound is a breakthrough in weight-loss treatments, a dual agonist simulating two hormones. It has shown impressive clinical study results, outperforming drugs like Wegovy. Zepbound is poised to become a market leader, with sales already hitting significant figures.

Lilly is also developing another drug, retatrutide, which combines GLP-1 and GIP with glucagon, showing the potential for significant weight loss. The company is exploring more innovations in this area, including GLP-1s that reduce side effects and are available in pill form.

Novo Nordisk is also progressing in this field with similar drugs and formulations.

An effective Alzheimer's drug is in the making.

In addition to weight loss medications, Lilly is making strides in Alzheimer's treatment. Its new drug, donanemab, has shown promising results in slowing the progression of Alzheimer's, potentially offering a significant advance in treating the disease.

Looking ahead, Eli Lilly's financial prospects appear robust, with some analysts projecting over $50 billion in peak annual sales for Zepbound and Mounjaro.

The company is also exploring the potential of tirzepatide in reducing cardiovascular risks and treating nonalcoholic steatohepatitis, which could further increase its market value.

My call: Buy on any dip and keep the shares for the next 5 to 10 years.

Celsius Holding is disrupting the energy drink market space

Celsius Holdings focuses on the production of fitness beverages, aligning itself with the rising trend of health awareness. The company's recent financial report highlights robust growth, evidenced by a notable rise in both revenue and profit. The expanding market for GLP-1 weight loss drugs opens new avenues for investment for Celsius and similar companies in the energy drink sector.

Celsius is not merely a purveyor of energy drinks; it actively engages with the worldwide surge in health-consciousness. Their dedication to providing scientifically supported health benefits is in sync with consumers' evolving preferences.

Celsius has just started to move outside the U.S. (the first territory is Canada). If the company is successful in Asia and Europe, it may become one of the biggest growth stories in the consumer space. I like the combination of a "cool" global consumer brand appeal that targets men and women alike coupled with health-consciousness.

The times to massively consume Coca-Cola, Pepsi Cola, and the like will slowly fade. A new breed of daily drinks will replace unhealthy sugar-rich nonalcoholic beverages globally - "more healthy functional beverages." Celsius drinks may well be one of them.

Introduction

Celsius Holdings is a critical player in the fitness beverage industry, marketing its products under the Celsius brand. These drinks cater to the health-conscious consumer, providing energy enhancement and wellness benefits.

Celsius asserts that their beverages, when paired with exercise, are clinically proven to boost metabolism and aid in burning body fat. The product assortment spans a range of flavors, all free from artificial preservatives and flavors and fortified with vitamins and minerals.

Celsius is available in stores and online and caters to the increasing consumer demand for functional beverages promoting a healthy lifestyle.

Latest Quarterly Report

The third-quarter financials of 2023 for Celsius Holdings offered a positive outlook, reinforcing my perspective of a strong buy. The company's significant revenue growth and strategic business alignments demonstrate solid financial health and potential for future success.

Celsius reported a remarkable 104% increase in revenue, reaching about $385 million in Q3 2023, up from $188 million the previous year. This growth, particularly the 107% revenue increase in North America, underscores the brand's rising popularity and market penetration in a competitive sector. Celsius's notable performance in dollar growth and unit sales in the energy category bolsters my conviction in the brand's ongoing expansion.

The brand's expansion into food service channels, including over 2,000 Jersey Mike's and 3,000 Dunkin' Donuts nationwide, diversifies its revenue and enhances brand exposure and accessibility. This strategy effectively reaches new consumer segments, potentially fueling further growth.

Celsius's solid online performance, leading the energy drink category on Amazon and excelling on platforms like Instacart, demonstrates its robust brand appeal and effective marketing strategies.

The company's financial results are equally impressive. Reporting a net income of $70.5 million, a significant turnaround from the previous year's net loss reflects operational efficiency and success. The improvement in gross margins to approximately 50.4% indicates effective cost management and operational leverage, contributing to the company's long-term profitability.

Shift to Pepsi-Cola for global distribution.

Celsius's strategic shift to PepsiCo distribution in North America and the expansion into international markets, including Canada, are foundational steps that build confidence among shareholders and investors.

Launching innovative products like Cosmic Vibe and the Celsius Essentials line, targeting fitness enthusiasts, shows the company's commitment to product innovation and market expansion.

GLP-1 Drugs and Energy Drinks

A recent analysis by Stifel indicating the potential impact of GLP-1 weight loss drugs on various sectors, particularly energy drinks, presents an intriguing investment opportunity.

The significant portion of U.S. consumers showing a willingness to use these drugs, and even greater interest pending proven results and FDA approval for weight loss, is a clear indicator of their potential widespread use.

This trend could lead to a 4% reduction in calorie intake, prompting consumers to turn to energy drinks for alternative energy sources, potentially benefiting companies like Celsius.

Survey results showing GLP-1 drug users' higher likelihood of consuming energy drinks suggest a potential 2% increase in U.S. energy drink consumption. This anticipated growth isn't just a temporary surge; it reflects a fundamental shift in consumer behavior with long-term implications for the industry.

The rising adoption of GLP-1 weight loss drugs could significantly alter consumer habits, leading to increased demand in sectors like energy drinks. This trend offers a unique investment opportunity for companies positioned to capitalize on these changing patterns. Stifel's insights lay a strong foundation for a 'strong buy' in this sector, underscoring the potential market impact.

Risks: International Expansion and Regulatory Compliance

Celsius' international expansion efforts, less impressive than its domestic success, have raised concerns about its ability to adapt to diverse global markets. Successful international growth is vital for long-term success in the competitive energy drink industry. The company's challenges in navigating varied international consumer preferences and market dynamics could limit its global strategy and raise questions about its adaptability and agility.

Furthermore, Celsius faces risks associated with its ingredients, some of which are banned by major athletic organizations like the NCAA and the Olympic Committee. The inclusion of substances like ginseng, guarana, L-carnitine, and taurine may lead to legal challenges and settlements.

Despite these risks, the global energy and sports drink market's projected growth to over $233 billion by 2027 suggests potential opportunities for informed market strategies by Celsius.

Monster, Red Bull, and the Celsius difference

The customer demographic for energy drinks like Monster and Red Bull leans predominantly male, with an estimated 70% male and 30% female split. However, my observations suggest that sightings of women consuming these brands are rare. In contrast, Celsius has achieved a more balanced demographic of 50% male and 50% female, indicating their successful outreach to female consumers, possibly due to several factors:

• Women have a preference for Celsius's flavor range.
• Celsius's marketing message resonates more with female consumers.
• The smaller can size of Celsius products is likely more appealing to women.

For Celsius to attain a 10% global market share in the next eight years, maintaining and growing its female customer base is crucial, and they appear to be on the right track. A quick exploration of social media platforms like Instagram or TikTok, mainly through the #Celsius hashtag, reveals many female users advocating for the brand.

Moreover, Celsius's appeal isn't limited to a specific age group. Its consumer base spans a wide age range, from teenagers to octogenarians, which is rare with other brands such as Monster, Red Bull, Rockstar, or C4.

Regarding the global beverage market, coffee has a valuation exceeding $550 billion, making it roughly five times larger than the energy drink sector. However, the growth rate of the energy drink industry is about double that of the coffee industry.

Instead of coffee at breakfast or lunch, more and more people are opting for Celsius, and the same trend is observed for those seeking a caffeine boost later in the day.

Should the coffee industry continue to grow at a rate of 4.3% annually and the energy drink sector at 8.5%, it would take about 42 years for the latter to surpass the former in market size. While it's optimistic to expect the energy drink industry to maintain such a growth rate over the next 15+ years, it remains a possibility, especially as these beverages evolve to become healthier and more appealing, thus attracting new consumers.

Valuation Analysis

Celsius' valuation metrics reflect its current market position and growth potential. The company has experienced significant growth over the past four years, with its stock price increasing substantially. This growth story and the discussed catalysts suggest continued upward momentum.

The forward Price-to-Earnings (P/E) ratio stands high at around 70, significantly above the sector median. While this may initially appear concerning, it should be understood within the context of investor confidence in future earnings.

The forward Price to Sales (P/S) ratio, at around 10, suggests the company is valued at around ten times its sales, indicating the market's aggressive bet on its future sales growth. A high forward Price-to-book (P/B) ratio of around 50 implies that investors foresee significant value creation beyond the company's current net asset value.

In conclusion, Celsius's valuation is not a traditional value play but reflects a strategic growth choice. The company's market position, growth trajectory, and potential in light of industry trends and challenges make it a compelling option for growth-oriented investors - if you believe the company can extend its domestic growth story and repeat it in overseas markets such as Europe and Asia.

My call: The Celsius growth story is intact. Skepticism regarding the forthcoming international expansion has prevented the shares from rising in the past few months. Assuming that the management can both expand its domestic market share and repeat its domestic success abroad, we may see a growth story similar to that of Monster Beverages.

Over the past 20 years, the company's stock price increased by 111,929 percent, making the 20-year gains posted by Apple and Amazon pale.