Energy drink maker Celsius Holdings (CELH -7.67%) continues to fuel its meteoric rise on a combination of dramatic sales growth, widening profit margins, and a new distribution deal with PepsiCo (PEP -1.70%) that could open international markets for its beverages . The stock is up 55% year to date. That stands in stark contrast to the market itself, with the S&P 500 down 15% in 2022 and fears of a recession hitting early next year. Even with better inflation numbers, they’re still at historically high rates, and although energy costs have declined, that’s due in part to the feared economic slowdown. While Celsius is capitalizing on the currently trendy “functional drinks” buzz phrase, let’s see whether it has what it takes to keep the growth going, especially if the economy and market tank further next year. Image source: Getty Images. Riding the wave Functional beverages are a broad range of drinks that are sought out for their perceived health benefits, whether they are energy drinks; juices; alternatives based on dairy, plants, or nuts; teas, or so-called smart beverages. Celsius makes sparkling and noncarbonated drinks under its own brand name that check all the right boxes for having no preservatives or artificial sweeteners, flavors, or colors. And they are certified vegan and soy-, gluten-, and sugar-free. It likely packs a wallop on environmental, social, and governance (ESG) ratings and is hitting its stride in an industry that’s also growing. The $22.8 billion energy drink market is expected to expand 8% annually through 2030, but it’s a crowded market, too. Monster Beverage (MNST -2.21%) and Red Bull control nearly three-quarters of the market between them, while everyone else — including Coca-Cola, Herbalife, and even Campbell Soup — vie for the remainder. It’s why Celsius Holdings’ partnership with Pepsi is so important. The friends it keeps In August, Celsius agreed to transfer its distribution operations to PepsiCo in exchange for a $550 million investment in 7.33 million Celsius preferred shares. PepsiCo also got a seat on the board of directors. It represents a massive opportunity because PepsiCo’s distribution network is obviously superior to the upstart’s. Also, the off-trade distribution channel — supermarkets, convenience stores, department stores — accounts for over 71% of where energy drinks are purchased. PepsiCo will be able to use its distribution muscle to get Celsius into refrigerator cases at these locations far easier and with greater display prominence than Celsius could hope for on its own. Celsius also has a significant presence on Amazon and inside Costco, two channels that accounted for almost 13% and 10%, respectively, of total sales in 2021. Celsius is also the second-best-selling energy drink on Amazon behind Monster with an 18.4 %share. Starting from nothing Yet it could be in foreign markets where PepsiCo helps most. Celsius saw just a 17% increase in combined European and Asian market sales last year, which amounted to 13% of its total. However, international sales of less than $28 million are down 16% year to date in 2022. In comparison, Monster had 18% growth overseas and its sales of $1.7 billion there far exceed those of Celsius. It could be said Celsius has nowhere to go but up in foreign markets, and the PepsiCo partnership should go a long way toward helping it do just that. Buying quality, but at a steep cost For investors deciding whether Celsius can continue on its torrid growth trajectory, the biggest hurdle it might have now is the stock’s valuation. It goes for 16 times sales and 75 times the free cash flow it produces. Although the energy drink maker has only recently transitioned from a use-of-cash position, Celsius is an expensive stock now. And while it’s riding a health-consciousness trend at the moment, it’s also a market that could readily move on to the next new thing. As we saw in the hard seltzer market, which also rode the health beverage trend to new heights, change for the worse could come almost overnight. Investors shouldn’t expect the triple-digit or even the high-double-digit growth to continue, since it’s hard to maintain such increases for an extended period of time. Celsius has a lot of tailwinds right now, but I wouldn’t be making the beverage stock a large position in my portfolio at these prices. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Rich Duprey has positions in Coca-Cola. The Motley Fool has positions in and recommends Amazon.com, Celsius, Costco Wholesale, and Monster Beverage. The Motley Fool recommends the following options: long January 2024 $47.50 calls on Coca-Cola. The Motley Fool has a disclosure policy.