The Diageo (LSE: DGE) share price is locked in an ugly downtrend at the moment. Over the last year, it has fallen about 17%.
However, while shares in the alcoholic beverage powerhouse have been sinking, another FTSE consumer stock has been charging higher. Over the same period, it has turned £5,000 into more than £13,000.
A soaring FTSE stock
The stock I’m referring to is Applied Nutrition (LSE: APN), which is in the FTSE 250 index. It’s a leading player in the health supplements space, offering everything from whey protein to gut health products.
Its share price is up around 160% over the last year. So, it’s fair to say it’s going in the opposite direction to that of Diageo’s.
Why is it surging?
It’s not hard to see why there’s a major performance gap between the two consumer stocks. Ultimately, one company is struggling while the other is booming.
For the financial year ended 30 June, analysts don’t expect any revenue growth from Diageo. However, for the year ending 31 July, they expect Applied Nutrition’s top line to rise 39% year on year.
Much of this can be explained by the backdrop. While consumers are cutting back on alcohol, they’re spending more on health products like whey protein, hydration supplements, and vitamins.
I bought some shares in Applied Nutrition back in April shortly after I spotted this trend. That move has worked out well for me – I’m already up 48% on my purchase price.
Is it too late to get involved?
Now, while the shares have obviously had a good run lately, I don’t think it’s too late to consider buying here. That’s because they don’t look that expensive to me.
Looking at earnings forecasts for the financial year starting 1 August, the forward-looking price-to-earnings (P/E) ratio is only 24. That’s not particularly high given the high level of revenue growth.
And I’ll point out that strong revenue isn’t the only attraction here. Another thing to like is the high level of profitability.
This is a company with a return on capital employed (ROCE) of around 50%, meaning that it’s very effective at turning capital into profits. Stocks with high ROCEs often outperform in the long run as the underlying companies compound their growth at a high rate.
It also has a strong balance sheet. While Diageo’s balance sheet is stacked with debt, Applied Nutrition’s hardly has any.
One other thing I like is the fact that it’s founder led. Founders tend to make strategic long-term decisions instead of focusing on short-term performance to please investors and as a result, founder-led companies are often very good long-term investments.
Applied Nutrition has momentum
It’s worth noting that a consumer slowdown is a risk. Generally speaking, supplements are discretionary goods, so we could see consumers cut back on them if economic conditions deteriorate.
Right now, however, the company has a lot of momentum. So, I reckon the shares are worthy of further research.
Should you invest £5,000 in Applied Nutrition Plc right now?
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Edward Sheldon owns shares in Applied Nutrition and Diageo.
