(Bloomberg) -- Celsius Holdings Inc. was hit with its worst quarter in more than a decade as the explosive growth of energy-drink sales slowed, but Wall Street is betting the upstart firm has the best shot at regaining lost momentum.

After three-straight years of triple-digit revenue growth, investors fretted slowing sales at Celsius would derail its bid to unseat its top-selling rivals, Monster Beverage Corp. and closely held Red Bull GmbH. Celsius’ stock plunged 31% in the second quarter, its worst loss since 2013. Cooling industry trends also weighed on Monster, which slumped 16%.

Wall Street bulls argue Celsius — which claims its drinks help burn calories — is still growing shelf space at retailers, while its beverages appeal to an increasingly health-conscious consumer, and it’s still in the early innings of an international rollout.

“If you think about where Monster was as an investment opportunity like 15 years ago, it’s up roughly 1,800% since then,” said Sean King, a senior analyst at Columbia Threadneedle Investments, which holds both Celsius and Monster shares. “Even though sales growth was decelerating a little bit, it was still growing at an attractive rate and had a long runway for international expansion — that keeps me constructive on the long-term opportunity for Celsius.”

Energy-drink sales growth slowed to 0.4% in the four-week period ended June 15, compared to 1.8% in the prior 12 weeks and 6.7% in the past year, according to a Morgan Stanley analysis of NielsenIQ data. The bank flagged Celsius’ sales growth and market share have been moderating since early May.

News that Celsius’ distribution partner PepsiCo Inc. was trimming inventory of its products exacerbated its rout.

Growth at Celsius is pulling back from “unsustainably massive levels,” but remains well above the industry rate, according to Roth Capital Partners analyst Sean McGowan. He recommends investors buy Celsius shares on expected market share gains in the US and internationally. The brand’s healthier image is also a plus, he said. 

Analysts tracked by Bloomberg forecast Celsius will see a 27% jump in revenue for 2024, well short of the recent hot streak, but above the 10% gain expected for Monster. 

McGowan rates Monster’s stock at neutral. It’s an “unbelievable company” from a free cash flow standpoint, but growth potential is more limited, and the expectations baked into the stock price appear optimistic, he said.

“It’s hard to look at either one of them and say they’re really cheap. If you’re going to pay a premium, you want to make sure you have that growth,” McGowan said. “I don’t think there’s reliably positive surprise potential in Monster’s growth the way that there could be for Celsius.”

Columbia Threadneedle’s King also has a more positive view of Celsius than Monster, as do the majority of analysts tracked by Bloomberg. Celsius’ consensus rating — a proxy for the ratio of buy, hold and sell recommendations — stands at 4.43 out of five, compared to 4.03 for Monster.

Celsius’ health and wellness branding appeals to a broader set of consumers than traditional energy drinks do, including more women and a wider range of ages. That increases its longer term growth opportunity, King said. 

Heat Wave

BNP Paribas Exane initiated coverage of both stocks this week, rating Celsius outperform and Monster underperform. Analyst Kevin Grundy sees a long runway for performance energy brands like Celsius and expects the category to drive energy-drink industry growth. He said Celsius has significant market share momentum in the US, while its “international story is just getting started.” 

For Monster, protracted US market shares losses remain concerning, Grundy said. He predicts performance brands like Celsius will continue to gain share at the expense of Monster and Red Bull.

Wall Street will be closely watching sales trends over the summer — an ideal time for guzzling drinks. Gerald Pascarelli, an analyst at Wedbush Securities, also anticipates PepsiCo will become more efficient at managing Celsius inventory. 

“People are collectively waiting to see what happens on these Nielsen reads,” he said. Outperform-rated Celsius is the “best volume growth story” in his consumer staples coverage and one of his top picks.

Meanwhile, Celsius management has projected that the shelf space and better product placement it’s recently gained at retailers would lure in customers and be reflected in industry data beginning in July. If trends do start to improve, expect shares to be rewarded, Pascarelli said.

--With assistance from Janet Freund.

(Updates stock moves throughout and chart.)

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