Celsius Holdings (NASDAQ: CELH) stock should drop 66% today. CELH stock dropping to only one third of its previous price is not a presage of some gross disaster. This is a purely technical matter. It’s also one planned and meant, this is not an error or a mistake. Finally, this is a change only in the nominal stock price. The actual value of the company or an individual stake in it should not change at all - not directly at least. The effect on the real price will be, if there is one at all, subtle and probably not immediate.
As to what’s done at Celsius: “Celsius Holdings, Inc. develops, processes, markets, distributes, and sells functional drinks and liquid supplements in the United States and internationally. The company offers various carbonated and non-carbonated functional energy drinks under the CELSIUS Originals name; dietary supplement in carbonated flavors, including apple jack’d, orangesicle, inferno punch, cherry lime, blueberry pomegranate, strawberry dragon fruit, tangerine grapefruit, and jackfruit under the CELSIUS HEAT name; and branched-chain amino acids functional energy drink that fuels muscle recovery under the CELSIUS BCCA+ENERGY name.” And so on.
It’s also doing this pretty well - market capitalisation is around the $13 billion mark. Recent results were good: “Record third quarter revenue of $385 million, up 104% from $188 million in Q3 2022 North America revenue increased 107% to $371 million, up from $180 million in Q3 2022” They’ve a tie up with Pepsi and so on. Things are pretty good in fact, so why would the stock price fall by two thirds?
Celsius Holdings stock price from Google Finance
The reason here is a combination of fashion and human oddity. The fashion is simply that the New York markets think that the “right” price range for a stock is $10 to $100. That this is just fashion is shown by the fact that in London it’s £1 to £10. The human oddity bit is that if the price of something is outside its “right” range - whatever fashion determines that to be - then we’re less likely to buy it.
If a stock price is above $100, so the thinking goes, then investors will be less likely to buy it because it is seen as expensive. So, that’s easy to solve. Say every old share now becomes three - a 3 for one stock split: “In a press release from late Thursday, Celsius announced that its board of directors had approved a 3-for-1 stock split. This will cause an amendment to the company's Articles of Incorporation, resulting in an increase of the total number of authorized shares from 100 million to 300 million. Following this split, shareholders of record as of Nov. 13, 2023, will receive two additional shares of stock for each share they own. The stock is expected to begin trading on a split-adjusted basis on Nov. 15.”
This doesn’t directly change the market capitalisation of the company, just the number of shares in issue. Therefore the stock price reacts mechanically in dropping 66%. And that’s it really, Maybe the stock price will rise marginally over time as a result as more people think that Celsius stock is “reasonably priced”.