Premium drinks maker Fevertree (LSE: FEVR) has been on a roll since going public in late 2014 and the past year has been no exception with the shares up over 120% in value. Without a crystal ball I can?t say for certain whether Fevertree can replicate this success in the coming year, but there are certainly strong signs that it’s possible.
The most important sign is that rocket-fuelled appreciation in share prices isn?t without reason: interim results through the end of June saw revenue climb 69% and EBITDA climb 72% year-on-year. Sales for the first six months of the year…
Premium drinks maker Fevertree (LSE: FEVR) has been on a roll since going public in late 2014 and the past year has been no exception with the shares up over 120% in value. Without a crystal ball I can’t say for certain whether Fevertree can replicate this success in the coming year, but there are certainly strong signs that it’s possible.
The most important sign is that rocket-fuelled appreciation in share prices isn’t without reason: interim results through the end of June saw revenue climb 69% and EBITDA climb 72% year-on-year. Sales for the first six months of the year were still only £40.6m and the premium mixer market certainly has plenty of room to grow (one EY study quoted by Fevertree in its AIM prospectus put the potential value of the sector at £0.7bn-£1.6bn by 2018). The company’s Q3 trading update released on Monday definitely backs this up, as management relayed to investors that “particularly strong” trading in the UK would put Fevertree’s full-year results “materially ahead of current market expectations.”
The key for it in replicating 2016’s success will be to rapidly roll out distribution networks and extend its first mover advantage in new territories. The company has already been doing this with aplomb and non-UK sales now account for over 60% of revenue. Fevertree has been able to achieve rapid growth overseas by outsourcing the low-margin and capital-intensive work of bottling and distributing its tonics and ginger beers to local distributors.
This model led to operating margins reaching 29% in interim results and added a further £10m to the company’s £18.6m war chest. With margins rising, sales growing at a double-digit clip even in mature markets such as the UK and a founder-led management team, I believe Fevertree has all the necessary ingredients to perform well in 2017.
But as well as Fevertree’s share performed in 2016 they still lag the 210% growth in share prices at online retailer Boohoo.Com (LSE: BOO). Boohoo is attempting to replicate the success of its larger rival ASOS in attracting 16-24-year-old customers with fast fashion options at rock bottom prices.
This has been working out fantastically well for Boohoo and interim results showed a 40% uptick in sales and 117% rise in EBITDA year-on-year. The path to replicating this year’s success in 2017 is similar to Fevertree’s: international expansion. While Boohoo’s core UK market is still growing at a very good clip, it’s seeking to crack the much larger US market, which could be huge for the retailer.
All this good news aside, I remain unsold by Boohoo’s long-term potential. The problem is that selling low cost clothing to young people isn’t exactly a business with a high moat to entry for competitors. Likewise, anyone who has been around 18-year-olds knows their tastes change rapidly, and I’m not yet convinced that Boohoo has cracked the code to longevity any more than previous flash-in-the-pan youth-oriented retailers have. I’d be happy to be completely wrong and certainly wouldn’t be shorting Boohoo, but over the medium and long term, it won’t be a share for me.
Boohoo's record of growing sales is impressive but it's a far way from matching the record of one retailer that has increased sales every year single going public in 1997. This stunning track record of success, high margins and a highly invested founder are a few of the reasons the Motley Fool's Head of Investing has chosen it as his top growth share.
And with international expansion taking off, the Fool's analysts believe the company can triple in size over the coming decade.
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Ian Pierce has no position in any shares mentioned. The Motley Fool UK owns shares of and has recommended ASOS. The Motley Fool UK has recommended boohoo.com. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.