Shares in tonic water producer Fevertree (LSE: FEVR) have surged by 12% today after it released a very positive trading update. The momentum seen in 2015 has continued into the first four months of the current year, with the premium mixer drinks movement continuing to grow. And with margins improving and sales rising, Fevertree now expects results for the full year to be materially ahead of market expectations.
Clearly, this is very positive news for the company’s investors and shows that Fevertree is moving in the right direction. However, with the company trading on a price-to-earnings (P/E) ratio of around 45, it seems to be rather fully valued despite its upbeat growth forecasts. Certainly, investor sentiment could improve yet further over the short run, but for long-term investors it seems prudent to await a lower share price before piling-in.
Long-term confidence
Also among today’s major movers is Mothercare (LSE: MTC). Its shares have risen by as much as 9% after it reported a return to profitability in the year to 26 March. In fact, underlying pre-tax profit increased by 51%, while the company is making further progress in its UK operations. For example, margins improved by 70 basis points, while Mothercare recorded a rise in online sales of 15% as well as like-for-like (LFL) sales growth of 3.6%.
Although international issues remain, Mothercare plans to strengthen this segment of its business. And with currency headwinds being a factor in its 12% fall in international profits, the overall performance of the company remains upbeat. Furthermore, due to investment in the company’s store estate and an enhanced customer experience, Mothercare seems to be bullish about its long -term prospects.
With Mothercare forecast to increase its bottom line by 21% this year and by a further 28% next year, it seems to be on the cusp of a significant turnaround. However, this doesn’t yet appear to have been fully priced-in by the market since Mothercare trades on a price-to-earnings growth (PEG) ratio of just 0.3. This indicates that now could be a good time to buy, with capital gain prospects being high.
Affected by rate rise prospect?
Meanwhile, shares in precious metals miner Hochschild (LSE: HOCH) have fallen by around 8% today despite there being no significant news flow released by the company. The fall is most likely due to plans for an interest rate rise in the US, with the Federal Reserve stating that it’s seriously considering raising rates as early as next month.
This would have a negative impact on the price of gold, since interest-bearing assets would become more appealing relative to their non-interest-bearing counterparts. As such, Hochschild’s guidance could come under a degree of pressure if the price of gold declines, although the company still has a relatively bright future. That’s because the pace of rises in interest rates is likely to be slow and so the gold price could yet rise much further. And with Hochschild trading on a PEG ratio of just 0.2, it seems to have a sufficiently wide margin of safety to merit investment right now.
