The Fevertree success story

During the last decade, Fevertree smashed analysts’ forecasts time and time again. A strong product and branding provided the basis for success. Coupled with huge growth in the UK craft spirits market, the company was in the right place at the right time to enjoy huge sales.

Since the highs of 2018, the Fevertree share price has fallen back to around the £24 mark. Why is this, and should investors be braced for a rocky ride? In 2019 Fevertee posted growth of 9.7%. In almost any scenario this would make for happy investors, but the track record since float shows this as comparatively poor performance.

Fevertree – pandemic problems

First-half revenue was down 11% due to the impact of on-trade sales. Bars and restaurants account for 45% of sales, so due to lower revenues and higher costs, Fevertree suffered a 35% fall in profits. Paul Summers looked at this in detail earlier this year.

The dividend was slightly increased to 5.41p, but as this is only a yield of around 0.7%, even reinvesting these dividends would not contribute hugely to investment growth. Potential investors must focus on the case for future sales increases as a reason to purchase the stock.

The future for the Fevertree share price

Even before the Covid-19 pandemic, sales in the UK had begun to fall. It is wise to consider if this is due to the boom period for craft spirits coming to an end. There is a limit to how much Fevertree can sell in the UK, and the data shows that rapid growth is over.

Fevertree must therefore focus on international expansion to grow sales. The US would be the logical market to focus on, but differentials in customer tastes make the situation more complex. The prevalence of dark spirits such as bourbon or rum in the US mean that Fevertree’s portfolio there will depend on products such as cola, rather than tonic water. This market is more crowded and will be difficult to penetrate.

Fevertree share price – an investment case

In my opinion, Fevertree has all the hallmarks of a sound investment case. Founder Tim Warrilow still remains as CEO. This gives good stability and continuity of vision. Businesses such as Superdry have demonstrated in recent years that removing this aspect (in their case, ongoing battles over the role of Julian Dunkerton) has negative impacts on investor confidence.

Fevertree have also demonstrated sound growth in sales, profits, and earnings per share, with dividend increases to boot.

And yet, I won’t be buying in. The price-to-earnings ratio currently sits at 50. Investors in this case are insatiable. Success is expected to be followed with more success. That demand becomes reflected in a very steep asking price. As a general rule of thumb, I like my investments to have a P/E ratio no greater than 20. I still believe Fevertree to be a sound long-term prospect, but would like to see the current price come down before investing.

The post The Fevertree share price. Is it time to buy in? appeared first on The Twelfth Magpie.

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bwatson1 has no position in any of the shares mentioned. The Motley Fool UK has recommended Fevertree Drinks. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Buying into Fever-Tree after the stock market crash at 935p a share and selling now would net you a cushy 156% return. 

Fever-Tree, like many of its AIM-listed peers, rides the waves of stock market volatility. The current trend is upwards, so why realise that pleasing return now?

Fever-Tree is a growth stock slowing down

Quite simply, Fever-Tree Drinks is a growth stock slowing down. Historically, the impressive stock price performance reflects the market’s expectations for the carbonated mixers supplier.

Until 2019, the company’s revenues, profits, and assets were increasing year on year and the market loved it. But, growth stocks can’t climb forever at the same rate.

Indeed, in 2019, a 10% rise in revenues did not translate into growing profits as increased costs and reduced domestic sales took their toll. Despite a strong balance sheet, Fever-Tree wasn’t meeting analyst expectations, sharply depressing the share price, and slowing the growth curve. 

Understandably, every investor wants above-average returns, and many will view growth stocks, like Fever-Tree, as a means of achieving this. But past growth is not an indicator of future growth and companies with good records usually sell at high prices. 

An investor can be right about a firm’s prospects but also pay too much for a stock, lowering returns on their purchase.

Fever-Tree Drinks share price is expensive

Fever-Tree Drinks currently trades around 2,394p. Many share price websites will show a price-to-earnings (P/E) ratio for Fever-Tree, around 47. This ratio takes the current price of the share and divides it by 2019’s earnings per share (EPS) of 50.3p.

Usually, a lower ratio indicates better value for money. However, if the year in question was unusually profitable, it’s easy to overestimate a company’s proper value. Using a multi-year average reduces the odds of overestimating the true value of a company.

Over the last five years, Fever-Tree’s average EPS is 35.5p, giving a massive P/E of 67, against an industry average of 22. I think Fever-Tree Drinks is vastly overpriced, even before considering market conditions.

Fever-Tree faces market uncertainty

45% of Fever-Tree’s revenues come from ‘on-trade’ sales, meaning they arise from pubs and bars where alcohol can be sold to drink on-premises. It’s not yet clear what will happen to the pub trade in the short term due to the government’s coronavirus fears.

In addition, Fever-Tree’s artisan products, innovative at first, are now facing stiff competition from the likes of Cobell and other mixer manufacturers. Unless the firm can carve itself a new niche, it’s growth curve will flatten further.  

Also thinking this way is fund manager Nick Train. His fund bought Fever-Tree for under 1,400p, not long after its sharp share price plunge earlier this year. He notes that the company needs to be “about more than tonic” and is eyeing stateside growth potential in ginger ale and soda water products. 

There is a definite future for Fever-Tree; its solid balance sheet should sustain the company through short-term trouble. 

However, its shares are too risky to buy at current prices. Upwards momentum for the stock makes it a good time to sell. I’d buy it again once the market adjusts. Just like Nick Train.

The post Fever-Tree Drinks share price: Why I’d sell today appeared first on The Twelfth Magpie.

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Rachael FitzGerald-Finch has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Nothing goes up forever though, and Fevertree stock is no exception. It has lost almost half its value over the last three months as investors question whether it is finally running out of momentum. However, the FTSE 250 stock does have one high-profile fan. Fund manager Nick Train, half of the hugely successful Lindsell Train double act with Michael Lindsell, has just bought the stock for his Finsbury Growth & Income Trust.

What’s so special about that? Fund managers buy UK stocks all the time. Well actually, Nick Train doesn’t. He is possibly the ultimate buy-and-hold investor, and rarely buys new names for his concentrated portfolio of conviction choices. Incredibly, Fevertree is his first Finsbury Growth & Income Trust purchase in three years. He must rate it.

You give me Fever

The world rates Nick Train, and with reason. Finsbury is up 50% measured over the last five years, against growth of just over 15% in its UK equity sector benchmark. The renowned Lindsell Train Global Equity has done even better, rising 107% over five years, against 49% for its sector.

We must assume that Nick Train sees Fevertree as a long-term prospect. He is also following the Warren Buffett mantra of being “greedy while others are fearful”, taking advantage of the recent sell-off, which intensified in January, after the company issued a profit warning following “subdued” UK trading over Christmas.

While UK sales fell 1% to £132.m, US sales compensated by rising 33% to £47.6m, and Europe (16%) and the rest of the world (32%) are also showing plenty of life. The benefit is that it reduces the group’s reliance on British gin lovers, who now contribute just half of all revenues, a percentage likely to shrink on current trajectories.

Nick Train isn’t the only investor looking at a buying opportunity here. Admirers have previously been deterred by its expensive valuation, which has topped 50 times. Today it looks relatively cheap at 24.8 times forward earnings.

Do not expect Fevertree to repeat its early runaway success. As a £1.4bn business, sheer size rules that out. Some of its novelty value has gone among drinkers, while competition from a revived Schweppes and other craft tonic makers is stiff. In 2015, earnings per share grew 303%. This year, they are forecast to grow just 3%, and 9% in 2022.

Its multi-bagging days may now be over, but it still has plenty of attractions, including an impressive 51% return on capital employed. You get a yield of 1.4% too. The early froth is now over, but at today’s price, Fevertree looks a tempting buy-and-hold. Just ask Nick Train.

The post The Fevertree share price has fallen 50%! Fund manager Nick Train reckons it’s a buy appeared first on The Twelfth Magpie.

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Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Between 2011 and 2014, easyJet (LSE: EZJ) was just such an investment. The budget airline’s share price quadrupled from 325p in September 2011 to 1,359p three years later.

Today, easyJet shares are trading at about 1,060p, a level which arguably makes them look cheap.

In this article I’ll be asking whether now is the right time to start buying this airline stock.

Beware the cycle

Budget airlines like easyJet say that their low-cost, high-volume business models mean they will avoid the boom-and-bust cycles that have affected the airline industry in the past.

Despite this, we’re currently seeing the same old themes emerge. Overcapacity in the short-haul market is pushing down ticket prices, but rising fuel and wage bills are lifting costs.

So far we’ve seen the group’s after-tax profits fall from a record of £548m in 2015 to just £358m last year.

Despite this, careful management of costs and well-filled flights still enabled the group to generate an underlying return on capital employed of 14.4% in 2018. That’s a respectable figure, in my opinion.

The right time to buy?

easyJet’s profits have already fallen substantially. Is this the bottom for the company’s share price?

One interesting point that struck me from the airline’s latest analyst presentation is that it’s planning for big changes to its fleet. Today it has 332 aircraft, but by 2023, this number may have risen to 403 or fallen to 283, depending on market conditions.

This flexible planning is impressive, but it also suggests to me a high level of uncertainty about the outlook for the European short-haul market.

As things stand, easyJet’s profits are expected to fall by about 25% this year, before returning to growth next year.

At current levels, the stock trades on 12.5 times forecast earnings with a 4% dividend yield. This might be good value, but I think a true bargain basement share price would need to be below 850p.

Given the uncertain outlook, I’m going to stay on the sidelines for now.

Running out of fizz?

Posh tonic maker Fevertree Drinks (LSE: FEVR) has enjoyed explosive growth in the UK in recent years. The firm’s timing — as gin became popular with younger drinkers — powered profits from £1.3m in 2014 to £61.8m last year.

But growth is slowing. This week’s half-year results showed revenue up by just 13% to £117.3m during the six-month period. Operating profit climbed just 6.6% to £34.8m.

With a 45% market share in the UK pub trade, I suspect Fevertree is getting close to its natural limit in its home market

Overseas pop?

The big hope for growth is overseas, but it’s not yet clear whether European and US drinks will embrace its range of tonics, ginger beers and colas.

Sales growth during the first half was 31% in the USA and 13% in Europe. These numbers are promising, but with sales still growing from low levels, I’m not yet convinced.

The risk for investors is that FEVR stock already trades on 42 times 2019 earnings. So if future growth does disappoint, the share price could have a long way to fall.

Although this stock could double again if US sales take off, I don’t think it’s worth the risk at current levels.

The post Is the easyJet share price still a millionaire maker? appeared first on The Twelfth Magpie.

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Roland Head has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

AIM-listed Fevertree yields just 0.6% for the current year whilst Shell’s corresponding reading sits at a whopping 6.5%. Yet given the choice I would much rather plough my investment cash into the drinks giant than the oil producer. But why so?

Turning green

It’s easy to be dominated by these headline figures when choosing to maximise income flows from your stocks portfolio. Those that find themselves seduced by yield can often find themselves in line for a pasting. Big near-term rewards are terrific, but will X Plc or Y Inc still be paying big yields in, say, a decade’s time?

I’m pretty worried about Shell’s ability to keep paying big dividends, if I’m honest. The world is moving closer towards greener energy sources at the expense of coal, oil and gas, a problem that has naturally long cast a shadow over the world’s oil majors.

Shell, for example, has just a modest footprint in the arena of alternative fuel methods. In an interview with The Guardian last month, Integrated Gas & New Energies director Maarten Wetselaar announced plans to double green energy investment to $4bn, but this is still a drop in the ocean compared with the multi-billion-dollar war chest the business has earmarked for its hydrocarbon operations.

Oil prices in danger?

But of course, Shell’s troubles don’t just come from the growing role of renewables in powering the global population. Signs of excessive pumping across The Americas in particular are fanning fears of huge oil oversupply now and in the medium-to-long term, putting crude price forecasts under the cosh and with them the profits outlooks for the drillers.

The crude price surge through $60 per barrel is looking a bit frothy, then, and is in danger of a sharp correction against this backcloth. Goldman Sachs for one has been cutting its oil price targets for 2019 amid concerns of surging US shale production and the effect of the US-China trade war in slowing these countries’ economies further.

I see the chances of Shell’s expected 8% profits rise this year falling short of target, and this puts the company’s near-7%-yielding dividend in danger too, given that it’s covered just 1.5 times by predicted earnings, and the company’s stretched balance sheet doesn’t leave much room for flexibility.

Mix it up

Things look much healthier at Fevertree. The anticipated dividend is covered 3.8 times by anticipated earnings, almost double the accepted benchmark of 2 times.

And judging by its great earnings outlook — another 15% profits rise is expected in 2019 — the London business remains in terrific shape to keep growing its dividends at a spectacular rate. Soaring demand for its drinks mixers helped sales boom 39% in 2018, Fevertree said last week.

Sure, it might be expensive on paper because of its forward P/E ratio of 44.9 times. But I consider it to be a much better growth and income bet for long-term investors than Shell and worthy of such a premium.

The post Fevertree Drinks or Royal Dutch Shell: which dividend stock should I buy today? appeared first on The Twelfth Magpie.

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Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Many share pickers may now be baulking at the idea of investing in the drinks mixer manufacturer today, however, on account of its sky-high valuation. At current prices around £35.70 per share, Fevertree carries a forward P/E ratio of 73.9 times (as well as a corresponding PEG reading of 3.4 times).

This would be a great shame, in my opinion, as I can see plenty of reason to expect the AIM business to keep soaring to new heights. Despite its high valuation I see plenty of upside to Fevertree’s investment case, and reckon it has all the tools to help you retire rich.

A growth and income hero

City analysts are certainly expecting it to continue the roaring earnings growth of recent years. A 22% bottom line advance is forecast for 2018, and a further 19% increase is estimated for next year.

These predictions also mean that the drinks colossus remains a compelling income share too. The business has lifted dividends by a staggering 3,450% since 2014, culminating in last year’s total payout of 10.65p per share.  And the number crunchers are expecting yet more heady dividend expansion, encouraged by Fevertree’s decision to hike the interim dividend by 40% to 4.22p last month.

Current estimates are suggestive of a 12.2p per share dividend in 2018 and a 15p payment next year. While yields may not be mighty, ringing in at 0.3% and 0.4% for 2018 and 2019 respectively, the rate at which Fevertree is expected to keep raising payouts should still make the ears of long-term investors prick up.

Catch the fever

And who would bet against it continuing to report stunning profits and dividend expansion long after 2019? Not me, and certainly not after viewing the firm’s half-year results.

Fevertree saw revenues blast 45% higher between January and June, to £104.2m, a result that drove adjusted EBITDA up by 35% to £34m. Sales in its core UK marketplace rose 73% in the first half. And the rate at which the mixer category is growing in its home territory — up by almost a third in the year to June, making it the fastest-growing carbonated soft drinks segment — shows that the trading environment is likely to remain highly favourable.

What’s more, such fine sales possibilities are not confined to these shores. Sales performance in its other major geographical regions of Continental Europe and the US may be more modest than those in Britain, rising 15% and 23% respectively during January-June at constant currencies. But Fevertree continues to build its distribution networks across these destinations to help it put the pedal down.

The ‘premium’ end of the broad beverages segment is proving to be increasingly big business around the world, and this, allied with the migration that is seeing drinkers gulp down long mixed drinks in increasing quantities, makes Fevertree a compelling investment destination today.

The post This is why growth hero Fevertree Drinks could help you to retire early appeared first on The Twelfth Magpie.

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Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Since then the manufacturer of premium mixers has seen its market value swell an impressive 142%. And as the fashionableness of its drinks takes off across the globe I believe the AIM-quoted business has much, much further to go in spite of its heady valuation (a forward P/E ratio of 63.1 times).

Fevertree saw group revenues detonate by an estimated 66% in 2017 to £169m thanks to hearty growth across its all regions. Despite toughening conditions for the wider British retail sector the drinks star still saw sales in its core market leap 96% thanks to market share grabs as well as the fruits of a rapidly-expanding mixers segment.

And looking elsewhere, it saw sales in Continental Europe and the USA jump 44% and 39% respectively last year, while aggregate turnover in its other foreign territories rose 57% year-on-year.

It is not surprising that City analysts expect the company to keep earnings growing at a sprightly rate, and rises of 10% and 17% are forecast for 2018 and 2019. With mixers demand stomping higher the world over and Fevertree investing heavily in its operations, it is not difficult to envision profits continuing to detonate long into the future.

Irn giant

I would also encourage those seeking a slice of the beverages market to take a sip of AG Barr (LSE: BAG).

The maker of much-loved products like Irn Bru has long been a reliable growth generator and, even though the sugar tax was introduced last week, City analysts do not expect this record to screech to a halt.

While Barr is taking a bit of a chance by reformulating the recipes of its flagship brands to avoid having to hike prices to protect its margins, a difficult alternative is maintaining the status quo as consumer spending power comes under the cosh. As a result, Barr has been busy reconfiguring its product portfolio in light of the tax and 99% of its brands now fall outside the remit of the levy.

Despite the changes, I am confident that the popularity of its much-loved labels means that the FTSE 250 company should continue to grow revenues, and the proven success of new product lines over the past couple of years emboldens my faith that demand for its soft drinks should remain robust.

This is certainly the take of the number crunchers who expect Barr to consequently print earnings expansion of 7% and 3% in the years to January 2019 and 2020 respectively. This means that dividends are likely to keep growing too — current estimates predict rewards of 16.4p for this year and 16.7p for fiscal 2019, resulting in chunky yields of 2.4% and 2.5% respectively.

Barr’s forward P/E ratio of 20.1 times might be pricey on paper. However, I believe the supreme brand power of its products, and therefore its decent earnings visibility, makes the beverages giant worthy of such a premium.

The post Fevertree Drinks plc’s share price is still rising. Should you pile in too? appeared first on The Twelfth Magpie.

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Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has recommended AG Barr. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Yet those expecting a period of strong and sustained profits progress in the near term may be disappointed as Legal & General’s long record of double-digit earnings expansion is predicted to stutter by City analysts. The FTSE 100 star is anticipated to follow a predicted 15% rise in 2017 with a 3% reversal in 2018.

But on the bright side, current forecasts make the insurer exceptional value, a forward P/E ratio of 10.5 times clocking in just above the bargain barometer of 10 times and under, while a corresponding PEG reading of 0.7 falls below the widely-regarded value watermark of 1.

And these figures leave plenty of share price upside should, as I expect, Legal & General get back to generating powerful profits growth further out.

Dynamite dividends

While these valuations are very appealing — at least in my opinion — it is in the dividend arena where Legal & General makes a particularly-big splash.

The company has pushed dividends up at a compound annual growth rate of 13.4% over the past five years. Athanks to its bright long-term earnings outlook and strong balance sheet (its Solvency II surplus boomed to £6.7bn as of June from £5.7bn six months earlier), the number crunchers are expecting further chunky growth.

Last year’s 14.35p per share reward is predicted to pound to 15.3p in 2017 and to 16.2p in 2018. As a consequence, yields for this year and next register at 5.7% and 6.1%, taking a forward average of 3.5% for the FTSE 100 to the cleaners.

Growth giant

I reckon Legal & General has what it takes to make investors very rich in the years ahead. And thanks to its own galloping progress at home and abroad, I reckon Fevertree Drinks (LSE: FEVR) could also prove a lucrative selection for long-term investors.

Indeed, like the Footsie-listed business, the mixers maker is also expected to spew out delicious dividend growth now and later. In 2017 a 9.7p per share reward is predicted which, if realised, would mark a stunning upgrade from last year’s 6.25p per share payout. And dividends are expected to rise to 10.1p in 2018.

I’m not surprised that many income chasers may want to give Fevertree a miss given that yields are still very low right now (these clock in at 0.5% for 2017 and 2018). But the company’s hot growth prospects convince me that yields should tear higher further down the line.

It said this month that “the mixer category is now the fastest growing category across the UK soft drinks sector with Fevertree responsible for 97% of the value growth in retail over the last 12 months.” And sales are also taking off further afield. Revenues in mainland Europe and the US for instance jumped 64% and 43% respectively in January-June.

City analysts expect the company to print an earnings advance of 60% in 2017 and 4% in 2018. So while it carries a toppy-looking forward P/E ratio of 52.8 times, the sunny outlook for global mixers market — allied with the bold steps the firm is making to improve its infrastructure and client relationships across the world — still makes it a very-appealing share.

The post Why Legal & General Group plc is set to be a millionaire-maker stock appeared first on The Twelfth Magpie.

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Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

According to the firm, the mixer category is the fastest growing part of the UK soft drinks market. And it has been responsible for 97% of that growth over the last 12 months, when measured by retail value.

Buy, hold or sell?

It seems that the only thing that’s grown faster than the group’s sales is its share price. The stock has risen by 1,164% since its flotation three years ago. In contrast, sales have grown by just 285% over the same period.

Although the group’s after-tax profits have risen by an impressive-sounding 2,784% since 2014, much of this is due to the group reaching a profitable scale. Profits aren’t expected to continue growing at this rate.

Using consensus forecasts as a guide, I estimate that Fevertree could report earnings of perhaps 40p per share after today’s upgrade. That puts the stock on a forecast P/E of 53.

Looking ahead to 2018, current forecasts suggest that earnings growth will slow to as little as 11%, which I estimate could give a P/E of 49. This means that even if profits doubled again, the stock would still trade on a P/E of 25.

The stock may continue to rise, but in my view its steep valuation means the risk of disappointment is also very high. I think it’s probably too late to buy.

Unstoppable momentum?

On the other hand, I could be completely wrong. It could achieve the kind of world domination currently enjoyed by Schweppes. And also by Associated British Foods (LSE: ABF).

This FTSE 100 conglomerate, which owns value fashion retailer Primark and several food businesses, saw its sales rise by 15% to £15.4bn last year. The group’s operating profit climbed 21% to £1,336m, in line with analysts’ forecasts.

The results were fairly satisfactory overall, and ABF ended the year with a strong net cash balance of £673m. Shareholders were rewarded with a 12% dividend increase.

Yet despite all of this good news, the group’s shares are down by 3% at the time of writing. Why is this?

Look forward, not back

In this case, one factor behind the share price weakness may be that the group doesn’t expect any benefit from exchange rates or asset sales during the current year. Last year’s profits were boosted by both of these factors.

Another potential concern is that lower EU sugar prices could weigh on profits from the Sugar division.

Still a buy?

Before today, analysts’ consensus forecasts suggested that the group’s earnings would increase by 9% to 137p in 2018. That puts the stock on a forecast P/E of 24, with a forecast yield of 1.4%. This may seem pricey, but I believe these shares could still be worth considering for long-term investors.

ABF has outperformed the market over the last five years, climbing 135% versus 29% for the FTSE 100. Today’s results suggest that the group’s momentum remains strong. I believe there’s a good chance that this well-run group will continue to beat expectations.

The post One FTSE 100 growth stock I’d buy ahead of Fevertree Drinks plc appeared first on The Twelfth Magpie.

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Roland Head has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Mother’s ruin

I am a big fan of gin and tonic. These days who isn’t? However, there is one thing I find hard to stomach about Fevertree: it currently trades at 100 times earnings. Can it justify such a gassy valuation?

My big concern is that growth rates must inevitably slow as the company struggles to maintain the frenetic pace of recent years. In 2015, for example, it recorded earnings per share (EPS) growth of an incredible 303%, as the craft tonic revolution belatedly caught up with the craft gin revolution. In 2016, EPS growth slowed to 106% and that is forecast to slip to 45% in 2017, and again to 12% in 2018.

Tree of life

No firm can expect to triple its earnings forever, so this slippage hardly comes as a surprise. However, forecast revenue growth remains impressive. In 2016, Fevertree generated sales worth £102m. In 2017, this is forecast to climb to nearly £153m, then £181m in 2018, with pre-tax profits following a similar trajectory. By then, the valuation is forecast to shrink to 61.8 times earnings. That is still heady, but less so than today.

Fevertree is now looking beyond its core UK market, which contributes 47% of group sales. UK revenues grew 117% to £33.6m in the year to 30 June but European revenues also impressed, growing 64% to £22m, with US earnings up 43% to £13.2m. The US looks particularly promising, with Fevertree now sold through retail giant Walmart, and its tonics winning a listing across the Virgin Atlantic fleet in July.

New spirit

I am less excited by plans to diversify, for example, by offering a premium cola and moving into premium dark spirits mixers. Fevertree caught a couple of waves when it launched its premium tonic (the hipster gin revival, and the clean food fad), with founders Tim Warrilow and Charles Rolls travelling the globe to source natural ingredients. Hard to pull off the trick a third time.

I reckon we are nearing peak gin, but at the same time I do not see a reversal in the trend towards fresher, more natural flavours. I used to be happy with Schweppes. I don’t buy it now.

Great expectations

Fevertree, which styles itself “the world’s leading supplier of premium carbonated mixers,” last month posted a 77% rise in first-half revenues to £71.9m, with gross margins of 54.5% and net cash up 117% to £40.5m. It also hiked its interim dividend by 95%% to 3.01p per share. Warrilow suggested the fizz could continue: “Given the strong performance in the first half of the year, the Board anticipates that the outcome for the full year will be materially ahead of its expectations.”

Fevertree may struggle to repeat its market disruption but US prospects could help it thrash today’s modest growth forecasts. It could still make you rich, although at a slower pace than before.

The post Multi-bagging Fevertree Drinks plc can still make you amazingly rich appeared first on The Twelfth Magpie.

More reading

• Back below 500p, is it time to consider BP shares again?
• Is there any value left in Lloyds shares now they’re over £1?
• How much would I need in a Stocks and Shares ISA to target £19,036 a year in second income?
• After huge new nuclear deals, are Rolls-Royce’s sub-£15 shares set to power higher?
• This 7.5% yielding passive income share is at a 13-year low! Time to consider buying?

Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes