Solid fundamentals

Naked Wines saw a near parabolic rise over the course of the Covid-19 pandemic. By sheer chance it had gone through a period of serious restructuring, closing its stores and moving entirely online, which left it poised to take full advantage of our extended stay at home.

It has excellent profit margins on most of its products as well as exclusive access to the majority of the wines it sells. It also operates a partial subscription model which continues to bring in revenue even as sales slump.

In fact, while the words sales slump may be billboarded on most articles about it, sales still grew by 1% over the past six months. While this number isn’t anything to write home about, growth is growth and year on year, Naked Wines has actually grown 68% between now and 2020. Gross profit margins have increased from 38% to 40% in that same time.

Subscribers have also grown by 25%, meaning that Naked Wines is continuing to attract new customers even as the majority of people are choosing to spend their money out in bars.

Why the crash?

I believe that we are seeing a share price contraction only because the price rose too high too quickly. Investors tend to get excited when they see percentage growth in the double digits, but a company needs to maintain that growth to justify its share price. If results fall short of expectations, shares tend to fall.

This is exactly what we have seen today. No losses, no shrinking, just a failure to meet high expectations.

Winter outlook

Company management seem sure that the holiday season will bring sales back on track. Large family gatherings are, in my experience, best enjoyed with ample access to alcohol. And who knows, another lockdown may well trigger a boost in orders. Or the novelty of drinking in a bar may wear off if food and drink prices continue to rise.

But no one can be sure of what the future holds. It may be that as fuel and food prices rise, people choose to end their subscriptions or cut back on luxuries. If this happens, then the share price may continue to fall.

Is now the time to buy?

When I last wrote about Naked Wines, I said that I wanted to wait and see how an end to lockdowns would affect sales. I was right to steer clear then, but is now the time to add it to my portfolio?

Adding it is a risky move, but I think the fundamentals are all here.

This winter is make or break. If Naked Wines can, at the very least, hold onto its subscriber base, then I think this price correction will stabilise around the 500p mark. If it can increase its subscribers over the next six months, then I think we will see a more sustainable increase in the share price.

The post The Naked Wines share price has crashed, but I’m still bullish appeared first on The Twelfth Magpie.

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James Reynolds 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.

What is ‘Naked Wines’?

Naked Wines is an online retailer specialising in the sale of wines and spirits. Its stated goal is to provide quality wines at low prices by acting as a direct channel between independent winemakers and customers.

What makes Naked Wines unique is its ‘Angels’ system. Angels are customers who choose to pay a subscription fee of £20 each month. This money is then used by Naked Wines to help fund independent winemakers around the world. In return for this subscription, customers gain access to a slew of discounts, ranging from £2-£6 per bottle, as well as exclusive wines unavailable in stores or to non-Angel customers. The subscription fee can also be redeemed as credit when making purchases later on.

Not a bad deal if you ask me.

But with all of these cost cutting measures in place, I wondered if Naked Wines was able to make any money at all.

Revenue and profits

Before the pandemic, Naked Wines was struggling financially. In 2019, the company lost a staggering £9.4m, prompting it to sell off two of its subsidiaries and become a completely online business. This transition was completed in March 2020 and could not have happened at a better time.

Following international lockdowns, Naked Wines went on bring in £202.9m in revenue for the 2020 fiscal year, an increase of 13.7% over the previous. It seems people were very happy to buy wine online while they were furloughed at home.

This growth trend has continued through 2021. The company increased revenue by 68%. That’s £340.2m so far this year. I believe this leap can be attributed to expansion into the US market.

The number of Angels has also increased by 53%, which is good for long-term stability.

Reservations

If the company is able to maintain or expand its customer base, I think the share price still has a lot of room to grow. However, I am hesitant to add Naked Wines to my portfolio today for one reason. Economic uncertainty.

I’m reading a lot about the UK possibly entering into recession. If this turns out to be true, we may now see a long period where households are forced to cut unessential costs, such as their monthly wine subscription.

Naked Wine customers may well consider their Pinot Noir to be essential. As we have seen, sales of alcohol do often go up in challenging times. But for now I’d rather wait and see how the market plays out before I add Naked Wines shares to my portfolio.

The post The Naked Wines share price tripled in the pandemic. Can it surge higher? appeared first on The Twelfth Magpie.

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• How much is needed in an ISA to unlock £1,220 of passive income a year?
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• The CMC Markets share price is smashing the FTSE 100 in 2026. Is there an opportunity here?
• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?

James Reynolds does not have a position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended Naked Wines. 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.

Covid-19 restrictions will soon start to be lifted and my portfolio and I are beginning to feel quite thirsty. So, I’ve decided to look at what I think are the two best UK beverage stocks on the market right now. I’m not looking for the best small beverage stocks to invest in, but rather some bigger businesses that I believe are worth investing in now.

Naked Wines

I was only made aware of Naked Wines (LSE: WINE) last year when the coronavirus first struck. This forced me to resort to home drinking and to order online. The company killed both of these birds with one stone, making it a very interesting UK beverage stock for me.

The Naked Wines share price has fallen sharply from the record peaks above 800p struck in February. But now it’s rising once more and remains up 186% in the past year as of market close on 6 April, rising from 268p to 765p.

Ahead of its full-year results due on 15 April, any dip in the price could be a great buying opportunity for me. I hope this report will be a timely reminder of just how well the company has fared in the past year. Its most recent financials showed a near-80% rise in revenue (to £157.1m) for the six months to 28 September, giving it a P/E ratio of 41.5. This is thanks to strong demand from both new and repeat customers. 

The pandemic showcased just how simple and effective a service Naked Wines can provide. However, pub and restaurant reopenings around the world could damage its share price as consumers flock back to such venues so that’s a risk I have to bear in mind if I buy now. That’s especially so as the share is clearly expensive already and is priced to continue performing strongly. If it fails to meet lofty expectations, the price could fall.

Coca-Cola HBC     

When buying strong UK beverage stocks for my portfolio, I also think I need to look no further than Coca-Cola HBC (LSE: CCH). This strategic partner of the Coca-Cola Company bottles and distributes its products in 28 countries. Naturally, it took a hit in 2020 as restaurants and bars closed, and travel and events ground to a halt. Sales fell 12.7% to €6.1bn.

But a successful vaccination programme leading to reopenings across the UK is promising. I think it could be a good time for me to add this stock to my portfolio. I’m looking forward to actually drinking outside of my flat for the first time in months and other consumers are likely to be feeling that way too. “We expect to see a strong FX-neutral revenue recovery in 2021,” the company said recently. And analysts expect revenue growth of 8.3% and 6.7% for FY21 and FY22, respectively.

Coca-Cola HBC is currently priced at 2,360p, up 21% in the past year from a price of 1952p, and giving it a P/E ratio of 24. 

This ‘reopening’ stock isn’t without significant risks though, especially considering the rapidly growing infection rates in Europe and other countries. This could throw a spanner in the works of any plan to get the world back to normal. As with Naked Wines, it’s also expensive. But I hope that its current upward trajectory will continue, especially as this UK beverage stock is still around 20% off of its all-time highs.

The post 2 top UK beverage stocks to invest in today appeared first on The Twelfth Magpie.

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The Motley Fool UK owns shares of Naked Wines. 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.