With a good few decades of investing ahead of me, I’m always on the lookout for great growth stocks to buy. Even better if their share prices are going through a period of temporary weakness.

With this in mind, here are three quality companies now trading near 52-week lows.

Fevertree Drinks

Late in January, one-time market darling Fevertree Drinks (LSE: FEVR) announced that cost headwinds would be more significant than expected, meaning that margins at the mixer specialist are likely to “remain broadly flat in 2022“.

This announcement succeeded in taking away most of the gains made in the second half of 2021. Fevertree’s share price now stands close to its 52-week low. So is now the time to buy the stock?

Well, a valuation of almost 49 times forecast earnings suggests not. Anything this high implies/demands a company should deliver perfectly on its strategy. That’s not easy considering the ‘interesting’ economic outlook right now.

Then again, this is not a stock that’s ever likely to trade at a bargain price. Prior to the pandemic, returns on capital — a key metric for star fund manager Terry Smith — were seriously good. Fevertree’s finances also look solid with hardly any debt on the balance sheet. There’s lots of ‘white space’ left for the company to grow into and it already possesses a great brand. 

I think there’s a good chance of this company recovering strongly, in time. For now however, it stays on my watchlist.

Softcat

IT solutions provider Softcat (LSE: SCT) is next up. The FTSE 250 member’s share price is also getting close to its 52-week low (1,419p, set last April). Considering its stellar track record, this selling pressure grabs my attention.

Like Fevertree, Softcat has a history of generating seriously good returns on the money it invests in the business. It’s clearly benefited hugely from the increased demand for support from clients over the pandemic too. 

That’s not to say Softcat is without risk. Margins, while decent for its industry, are average relative to the rest of the market. The stock also trades on a P/E of 33. That’s pricey, considering that earnings aren’t expected to grow much at all this year. 

Given that the stock could fall further if the rotation into value stocks continues in 2022, Softcat only makes it to my watchlist, for now. 

Games Workshop

A final growth share that’s let off steam has been the fantasy figurine-maker Games Workshop (LSE: GAW). The shares are now down over 20% year-to-date and only slightly above the 52-week low. Product release delays and increasing costs are partly to blame.

Of the three mentioned here, this is the stock I’d be most likely to buy today. While fixating on valuation is never a good idea, a forward P/E of 22 looks very reasonable, considering its dominance of this niche market. Again, its finances are robust compared to many other companies.

Yes, there’s a risk the share price could dip lower if margins continue to be squeezed. As such, it may pay for me to buy in tranches if I end up pulling the trigger.

There was a time when Games Workshop was knocking on the door of the FTSE 100. Assuming it is able to successfully push its Warhammer franchise over the next few years via games and films, I’m confident this could still happen. 

The post 3 top growth stocks near 52-week lows appeared first on The Twelfth Magpie.

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Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has recommended Fevertree Drinks, Games Workshop, and Softcat. 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.

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.

Changing hands for near-4,000p a pop in 2018, the company’s share price tanked to just 900p during March’s market crash. Since then, it’s more than doubled.

Could the worst be over? Today’s half-year results suggest a tentative ‘yes’. There’s just one catch.

Fevertree exceeds expectations

Like other UK-listed companies in the drinks sector, Fevertree was always likely to be hit by the lockdown. While people could still enjoy a tipple at home, it was inevitable that the closure of pubs, bars, and restaurants across the country and beyond would hit sales. This also came at a difficult time for the £2.5bn cap as concerns grew over its ability to continue growing earnings at its previous rate.

Today, however, the company reported that off-trade sales had exceeded expectations and helped to mitigate the impact of Covid-19. This is not to say that all the headline numbers were necessarily pretty. 

Despite maintaining its position as the number one brand in the UK, revenue from its home market slumped 20% to £48.3m over the six months to the end of June. In Europe, revenue fell 29% to £20.5m.

Elsewhere, the figures were far more encouraging. In the US — a key growth market for the company — revenue rose 39% to £27.4m. This was way ahead of what was forecast and, when combined with a slight increase in its remaining markets, led Fevertree to report an 11% dip in sales overall (£104.2m). Not great but hardly disastrous.

Adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) fell 35% to £23.8m. Margins also declined.

Positive outlook

All told, I think it likely that long-term holders of the stock will be fairly reassured by today’s results. The fact that Fevertree has continued to invest in marketing and its online platform during the pandemic (as well as recruiting new staff) doesn’t smack of a company in trouble. The post-period-end purchase of German distributor Global Drinks Partnership also bodes well, as does news on recent trading.

According to CEO Tim Warrilow, Fevertree has seen “an encouraging start to the second half of the year” and once free of the coronavirus, should be “in an even stronger position” than it was previously.

In the meantime, Fevertree’s finances continue to look rock-solid. The company had net cash of £136.9m at the end of the reporting period. This is up 32% from June 2019.

As positive as all this is, however, I’m still put off by the price investors are being asked to pay to acquire the stock. 

Fizzy valuation

A quality business usually commands a high price and Fevertree is no exception. At 59 times forecast earnings, however, the valuation is undeniably steep. High margins and returns on capital employed aside, that doesn’t translate to an appealing risk/reward trade-off from my perspective. After all, the coronavirus still hasn’t gone away. Indeed, things could still get worse before they get better.

Taking this into account, it’s perhaps no wonder that some traders decided to bank profits early this morning. If you’re tempted to buy the stock, just ensure you’re nicely diversified elsewhere.

The post Is top UK growth stock Fevertree now a buy? appeared first on The Twelfth Magpie.

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Paul Summers 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.

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.

Tonic water specialist Fevertree and Vimto-maker Nichols are recent examples of seemingly temporary setbacks have caused sentiment to sour. 

Today, it was the turn of Hemel Hempstead-based Britvic (LSE: BVIC) to update the market. Based on early trading, it would seem investors were very relieved by what the company had to say. 

Going pop

Revenue over the first quarter of the financial year fizzed 2.6% higher to just shy of £370m. That’s far from explosive but it’s good enough, at least in my view, for such an established business.

As a result of this performance, the £2.3bn market cap firm stated that it was confident of meeting analyst expectations for the full year while cautioning that conditions would “remain challenging“.

The only other news worth mentioning related to the sale of some of its troublesome French assets to independent bottling firm Refresco. Britvic now believes the deal will be completed at some point this year, assuming regulatory approval is received. 

Considering the relatively defensive nature of its business, I continue to like this company’s valuation. A forecast price-to-earnings (P/E) ratio of 14 (at least before markets opened this morning) doesn’t seem too steep for a firm that boasts a portfolio of brands such as Robinsons, Tango, and J20 and also holds the licence to produce and sell PepsiCo products in the UK and Ireland.

Britvic’s income credentials shouldn’t be overlooked either. A likely total dividend of 33.5p per share in the 2020 fiscal year gives a yield of 3.7%. That’s higher than the 2.8% or so you’d receive from buying an exchange-traded fund that tracks the FTSE 250 index of which it is a member. 

Taking all this into account, I continue to think that the mid-cap warrants attention from investors looking for a mix of steady growth and decent income from their stocks. 

Buy the dip?

The reaction to today’s update from Britvic (+4%) is in complete contrast to yesterday’s response to the latest interim results from FTSE 100 spirits giant Diageo (LSE: DGE).

Due to “increased levels of volatility” in parts of the world including India and Latin America, the owner of brands such as Johnnie Walker whiskey and Smirnoff vodka said that organic net sales growth for the year would now be at the lower end of its 4-6% mid-term target.

Compounding investors’ fears, CEO Ivan Menezes also mentioned “ongoing uncertainty in the global trade environment”, and added that the company “would not be immune from further policy changes”. Shares duly fell.

Of course, one should avoid judging a specific stock based on a short period of trading or macroeconomic issues. Investing is a long game. Diageo remains a global leader in what it does, is hugely cash-generative, and delivers reliably good returns for shareholders on the money it invests.

It’s also a consistent dividend-hiker, further evidenced by yesterday’s 5% increase to the interim payout (to 27.41p per share). The consensus from analysts is that the company will return 72.9p per share to its owners in this financial year, giving a yield of 2.4%.

With shares almost 20% lower in value now than they were in September last year, I’m very tempted to get involved.

The post This FTSE 250 stalwart isn’t the only stock I’d buy for growth and income appeared first on The Twelfth Magpie.

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Paul Summers has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended Britvic. The Motley Fool UK has recommended Diageo. 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.

The mid-cap’s shares were up a stunning 15% this morning as the company reported that adjusted pre-tax profit for the 2020 financial year (which ended on 25 January) would be “at the top end of current market expectations, just ahead of £37m.”

Despite facing “a combination of challenging trading conditions during the year,” Barr said revenue was likely to come in around £255m. While this may be 9% lower than the £279m achieved in 2018, investors were clearly comforted by news that sales of its flagship drink returned to growth in the fourth quarter after consumers had previously baulked at management’s decision to increase prices. Elsewhere, the company’s Funkin cocktail solutions continue to win fans and issues relating its Rockstar and Rubicon brands appear to have been resolved. 

The outlook is also positive. Although the market “remains challenging,” Barr predicted that the “encouraging trading momentum” witnessed towards the end of its financial year is likely to continue in 2020.

Taking the above into account, I remain bullish on the FTSE 250 stock and continue to rate it as a decent addition to most quality-focused portfolios. At 20 times forecast earnings even before today’s news, the shares are hardly cheap.

As one of the UK’s most successful fund managers recently remarked, however, the assumption that value stocks will deliver superior returns has been misplaced for a while now. But the fact that there’s also minimal debt on the balance sheet may prove hugely beneficial if/when sentiment on the economy sours and this great bull run finally comes to an end.

Next to pop?

AG Barr isn’t the only member of the drinks industry to have found things tough recently. Tonic water specialist Fevertree‘s troubles are well publicised. Less talked about is Vimto-maker Nichols (LSE: NICL).

Shares in the business have been under pressure of late following news that Saudi Arabia and the UAE have implemented a 50% tax on sweetened drinks, regardless of the sweetening method used by the companies manufacturing them.

This means the latter can’t simply reformulate their products (as they have in the UK following the introduction of the sugar tax). As a result, the company warned in December that FY20 pre-tax profit may come in “materially below current expectations.“

While clearly a setback for Nichols, I wonder if the market might be overreacting. At roughly £7m, sales in these countries represent only a small proportion of its total revenue. Moreover, the full impact won’t be known until after Ramadan (April 23-May 23).

Given the popularity of the Vimto brand, there’s always the possibility that things won’t turn out quite as bad as investors think. Aside from this, it’s worth mentioning Nichols continues to do just fine in its core UK market with sales hitting £117.7m in 2019, despite strong prior year comparatives. 

Factor in the relatively defensive nature of its business, consistent hikes to the dividend, a bulletproof balance sheet, and high returns on capital, Nichols still justifies its P/E ratio of 19, in my view. I have no hesitation in retaining (and potentially adding to) my holding in 2020.

The post This FTSE 250 stock has fizzed 15% higher today. I think there could be more in the can appeared first on The Twelfth Magpie.

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Paul Summers owns shares of Nichols. The Motley Fool UK has recommended Nichols. 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.

Reasons to be optimistic

The first reason Fevertree’s shares might be worth buying is simply based on the assumption that the market has overreacted. Despite flagging sales in the UK, growth overseas (including 33% in the US) has been encouraging. You might argue that Fevertree is merely experiencing the predictable pains endured by all successful businesses when their domestic markets mature.

Second, Fevertree has a history of scoring highly on metrics such as operating margins and returns on capital employed — just the sort of business preferred by star fund manager Terry Smith. Importantly, those that built the company from scratch also remain in post with sizeable shareholdings.

Third, Fevetree’s finances are in sound order with management expecting to report a year-end cash position of £128m in March. Many firms would kill for its balance sheet. 

Fourth, Fevertree doesn’t feature high up the list of those stocks currently receiving attention from short-sellers. That suggests even the most pessimistic market participants lack the conviction, at least for now, to truly bet against CEO Tim Warrillow and his team being able to turn things around. 

A final, admittedly speculative, reason is that Fevertree’s dramatic fall from grace makes it a bid target. Potential US suitors include beverage giants Coca Cola and PepsiCo. In the UK, Diageo — owner of gin brands Gordon’s and Tanqueray — could also be running the rule. 

On the other hand… 

The first reason I’d steer clear is the possibility we’ve reached ‘peak gin’ in the UK, at least based on the revenue growth stagnating. Like most things, specific drinks gain and lose popularity over time. Perhaps recent trading is the first indication of a reversion to the mean.

Second, there’s still no certainty the company’s performance in the UK can be replicated overseas where the popularity of a gin and tonic is arguably lower. Moreover, the trend towards premiumisation could slow if concerns over the global economy gather pace, leading consumers to switch to lower-priced alternatives, or avoid them altogether.  

A third reason relates to increased competition and the lack of an economic moat. With the aforementioned excellent margins, it was only a matter of time before more established rivals set out to steal market share back from the AIM-listed upstart. Even if the demand for mixers were to remain, there’s no guarantee fickle shoppers won’t gravitate towards other brands. 

Fourth, the potential opportunity cost of missing out on gains elsewhere must be considered. This is particularly relevant here given that Fevertree returns very little cash to shareholders. As such, investors might reasonably ask whether it’s worth waiting for a recovery if they aren’t being compensated for their patience.  

The final reason to avoid Fevertree rests on its valuation. Despite falling 60% from the highs reached in September 2018, the stock still trades on a lofty 30 times forecast earnings — mightily expensive for a company issuing profit warnings.

In sum, I remain undecided and that’s sufficient for me to stay on the sidelines for now.

The post 5 reasons why I’d buy the Fevertree Drinks share price (and 5 reasons I’d steer clear!) appeared first on The Twelfth Magpie.

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Paul Summers 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.

Based on this rather brief statement (and in contrast to one of its peers), it would appear the FTSE 250 constituent is holding its own.

Confident outlook

Revenue came in at £360.1m over Q3 — a fall of 1.5% at constant currency compared to the same period in 2018.

Geographically, performance was mixed. Sales grew in Britain, despite the market “declining in value and volume” as a whole over the three months to 7 July. Oversea revenue growth also continued to be “solid“, but the French and Irish markets showed signs of “further softening since the half-year.”

While today’s statement hasn’t seen the shares fizz higher, the fact the company is still confident of meeting analyst forecasts for the full-year in spite of “a more challenging backdrop” may be considered something of a victory for holders. Especially after what happened over at Irn-Bru-maker AG Barr last week.

To recap, the latter’s share price dived on 16 July after it reported that sales and profits would likely drop 10% and 20%, respectively in the current financial year as a result of poor weather and issues with some of its brands such as Rockstar and Rubicon.

While management certainly can’t be blamed for the lower temperatures in 2019, it’s clear Barr’s decision to increase prices after focusing on raising volumes in 2018 has backfired. Steps to resolve the brand-related issues have apparently been taken, but it will take a while to see the benefits.

To rub salt into the wound, interim results from AIM-listed peer and Vimto-maker Nichols were far more reassuring. Last week, the business reported growth in both the UK and overseas with revenue and pre-tax profit up by 10.2% and 2%, respectively. 

In my opinion, Nichols represents the standout quality pick of the three since it consistently generates the highest operating margins and returns on capital employed and also boasts a net cash position.

That said, its valuation of 23 times forecast earnings makes it the most expensive stock to buy. Despite a long history of increasing cash payouts to holders, the 2.3% yield is unlikely to whip dividend seekers into a frenzy either.

As things stand, AG Barr is the least investable, in my view. At 21 times forecast earnings, the shares still aren’t cheap enough, considering the uncertain outlook and the likelihood of further exceptional costs being announced later this year. On the flip-side, I suppose any further pressure on the share price could make the company an attractive takeover target. 

For value and income hunters, however, Britvic looks the clear winner. The stock trades at just 15 times earnings FY19 and comes with a best-in-class forecast yield of 3.5%, covered almost twice by profits.

Considering its market-cap, big portfolio of brands, and the fact it holds the licence to distribute Pepsi and 7Up in the UK and Ireland, I also think the company could be the most defensive option for those concerned by the volatility of smaller stocks and the susceptibility of these firms to things outside of their control.

The post Why I remain bullish on this FTSE 250 dividend stock after today’s news appeared first on The Twelfth Magpie.

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Paul Summers owns shares in Nichols. The Motley Fool UK owns shares of and has recommended Britvic. The Motley Fool UK has recommended Nichols. 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.

Following a hugely successful few years, there have been suggestions from some analysts that the UK’s recent love for gin is now beginning to fade and that the £2.7bn cap would likely struggle to better last year’s sales in the sweltering summer of 2018. Questions were also being raised regarding Fevertree’s decision to move into the potentially-highly-lucrative but notoriously difficult-to-crack US market.

This morning’s numbers would seem to give some credence to these concerns.

Losing fizz? 

We’re certainly not talking a disaster here. Indeed, Fevertree reported “continued growth” in all four of the regions in which it operates over the first six months of 2019 including “very encouraging momentum” in North America. 

With regard to the UK, the company reflected that it had “further strengthened” its position as the top brand in the mixer category, despite the relatively poor weather over the last few months. It also reported securing “significant off-trade distribution wins” in Europe and an “acceleration of growth” in Australia and Canada.

As good as all this sounds, however, the actual numbers were somewhat less impressive.

The 13% rise in revenue to £117.3m over the first half of 2019 was slightly lower than some analysts were expecting and far below the 45% achieved over the same period last year. Adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) came in at £36.7m — a rise of 8% but, again, a far lower rate of growth than that reported in 2018 (+35%). 

CEO Tim Warrilow remains bullish. Looking to the future, he said that Fevertree’s focus on long mixed drinks was “gathering momentum and starting to win share from beer and wine”.

Mr Warrilow went on to say that the company’s range of products, connections with spirit makers, the strength of its brand and the growth of its distribution network made management confident of the “significant global opportunity that lies ahead” for Fevertree.

Indicative of this belief, the interim dividend was hiked 23% to 5.2p per share.

Still expensive

Fevertree’s share price was down around 5% in early trading, erasing the gains seen yesterday in anticipation of today’s results. It would seem that the company’s prediction that trading would only be in line with full-year expectations this time around was deemed not enough for a good number of its growth-focused owners.

Current analyst expectations of 58.3p per share for FY2019 leave the stock on a forecast price-to-earnings (P/E) ratio of roughly 37. That’s certainly not as high as it once was but it remains pretty frothy considering the firm’s near-term outlook.

Sitting on the sidelines

This is, without doubt, a great business. Many others would kill for Fevertree’s fat profit margins, huge returns on capital employed and £104.1m net cash position. 

But while the shares have almost halved from the all-time high hit last September, today’s numbers make me inclined to wait for the stock to fall even further before taking a position.

No stock is worth buying at any price and, right now, the rate of progress being made is at odds with the lofty valuation, in my view.

Fevertree remains on my watchlist. 

The post This top growth stock’s share price has almost halved in less than a year. Time to buy? appeared first on The Twelfth Magpie.

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Paul Summers 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.

This isn’t to say, however, that there aren’t better opportunities for making money elsewhere in the market.

Before giving an example, let’s look through today’s solid (if not astounding) full-year numbers from the Barr business. 

Resilient but pricey

Revenue rose 5.6% to £279m over the 52 weeks to 26 January with the company reporting a “significant increase in volume share” in the UK market. Pre-tax profit before exceptional items rose 2.5% to £45.2m and net cash grew 45% — higher than expected — to £21.8m.

Commenting on today’s results, CEO Roger White said its strategy and execution were “fit for purpose and resilient,” even if uncertainty abounds in the UK economy. He went on to say that the robustness of the company’s markets gives it “continued opportunities to grow.”

With 99% of its soft drinks portfolio now exempt, it would also appear clear that the introduction of the sugar drinks industry levy (otherwise known as the ‘sugar tax’) is unlikely to have a significant impact on the mid-cap’s ability to continue growing revenue and profits. 

Despite all this and AG Barr’s well-earned status as a quality stock, I can’t necessarily see many investors jumping to own based on the current valuation.

A price-to-earnings (P/E) ratio of 23 for the next year is above its five-year average of just under 20 and it’s hard to see why the shares might fizz much higher in the near term.

Income investors are unlikely to be interested either. Today’s final dividend of 12.74p per share gives a total payout of 16.64p per share for the year. That may be 7% more than last year, but it still only gives a trailing yield of 2.2%. 

As mentioned, I think there’s another company that could offer far better returns to investors.

Going cheap

CFD and spread-betting provider IG Group (LSE: IGG) had a shocker last week, falling 10% in value in just a couple of days. That came after revealing a 12% reduction in net trading revenue in Q3 compared to Q2 as a result of increased industry regulation.  

Personally, I see this as a great opportunity to acquire a slice of a company that’s a global leader in what it does. 

On a P/E of just 11 for the year, IG looks cheap considering its history of generating exceptional returns on the money it invests. There’s a truckload of cash on the balance sheet and the firm has also committed to returning 43.2p per share in the current financial year, which translates to a mouth-watering 8.5% at the time of writing.

Even if cash payouts were to be slightly reduced as a precautionary measure in the future, I’m confident the income on offer will still be worth grabbing while IG continues to adapt to the new trading environment. The fact that it still doesn’t attract anywhere near the same interest from short sellers as rival Plus 500 is telling too.  

Is IG in a tricky spot? Yes. Could it get worse? Possibly. Do I expect it recover in time? Absolutely. And that’s why it’s now earned a place in my ISA portfolio.

The post This FTSE 250 stock looks fully valued for now. Here’s where I’ve put my ISA cash instead appeared first on The Twelfth Magpie.

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Paul Summers owns shares in IG Group. 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.