3 shares bringing big money in from nights out

Is this key sector of the economy rife with great investments?

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Having a pint at the local pub or eating out at your favourite restaurant may not feel like a patriotic activity, but with the ‘night time’ economy representing a full 6% of the UK’s GDP rationalising that extra night out a week as ‘doing your duty for Queen and Country’ isn’t quite as ridiculous as it sounds. With the sector accounting for some £66bn of spending annually, there are also plenty of interesting investment opportunities to be found.

Astronomical growth rates

One of my favourites is Fevertree (LSE: FEVR), which makes up-market mixers like tonic and soda water for cocktails. This a fast-growing market as, just as has happened over the past decade with beer, consumers are increasingly demanding pricier, high-quality mixed drinks.

With snazzy designs and hipster-friendly tales of sourcing only the freshest ginger from Nigeria and lemons from Sicily, Fevertree has been growing at a rapid clip. The company’s latest interim results recorded a 69% year-on-year rise in revenue and 72% rise in EBITDA.

What attracts me to Fevertree, besides astronomical growth rates, is the company’s out-sourced production model that rids the company of the low-margin work of bottling and distributing its drinks. This led to gross margins hitting 54.8% over the past six months. With high margins, high growth and net cash on the balance sheet, it’s easy to see why the market has fallen in love with Fevertree and sent its share price up to an astronomical 51 times forward earnings.

One to watch

It’s hard to talk about hipster-friendly listed businesses without mentioning Time Out Group (LSE: TMO), the parent of the millennial-targeted Time Out Magazine. Time Out makes money through traditional print sales and, most importantly, increasingly relies on digital ad sales in the 100 or so cities it has a presence in. As print revenue declines, to the tune of 2% year-on-year over the past six months, the double-digit growth from digital sales will be the critical factor in the company’s long term health.

There’s good news on that front, as the 33% rise in digital revenue over the past half year was exactly in line with a significant 33% increase in global readership. The company only went public in June, but if it can continue to increase page views at a rapid pace and monetise e-commerce opportunities such as concert ticket sales then Time Out could be one to watch in the coming years.

An expensive business

Perhaps the polar opposite of Fevertree and Time Out is pub chain JW Wetherspoon (LSE: JDW). Wetherspoons is already a giant in the industry with 926 pubs, but that hasn’t protected it from the major changes rocking the sector, such as falling foot traffic, high taxes and Britons increasingly shifting towards drinking at home.

Like other pub chains, Wetherspoons plans to confront these issues is to broaden its appeal with more emphasis on food sales, higher-quality pubs and expanding into offering hotel rooms. The problem is this is an expensive business. Net debt is up to 3.47 times EBITDA and operating margins fell to 6.9% over the past year from 7.4% the year before. Wetherspoons has an enviable array of pubs and is still generating significant cash, but with relatively low growth prospects, high debt, low dividends and a rough industry outlook I’ll be looking elsewhere for my investments.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Ian Pierce has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Fireworks display in the shape of willow at Newcastle, Co. Down , Northern Ireland at Halloween.
Investing Articles

How would I start planning my Stocks and Shares ISA for 2025? With this super-solid growth stock

I can’t think of a better way to prepare for a new year than opening a fresh Stock and Shares…

Read more »

Hand of person putting wood cube block with word VALUE on wooden table
Investing Articles

Down 26% to just £4, Glencore’s share price looks cheap to me right now

Market pessimism over China’s economic growth has helped push Glencore’s share price down but I think this is overdone, leaving…

Read more »

Number three written on white chat bubble on blue background
Investing Articles

Just released: the 3 best growth-focused stocks to consider buying in November [PREMIUM PICKS]

Our goal here is to highlight some of our past recommendations that we think are of particular interest today, due…

Read more »

Shot of a senior man drinking coffee and looking thoughtfully out of a window
Investing Articles

Why now could be the time to get ready for a stock market crash

Both the FTSE 100 and the S&P 500 climbed after the US election results. But Stephen Wright thinks now is…

Read more »

Portrait of elderly man wearing white denim shirt and glasses looking up with hand on chin. Thoughtful senior entrepreneur, studio shot against grey background.
Investing Articles

A UK share and an ETF that could soar following Trump’s election win

Donald Trump's White House return poses huge uncertainty for the global economy. But this UK share and ETF could gain…

Read more »

A pastel colored growing graph with rising rocket.
Investing Articles

2 FTSE stocks that demonstrate the best (and worst) of the AIM market

Our writer looks at the performance of two very different FTSE stocks that highlights the pros and cons of investing…

Read more »

Mature Caucasian woman sat at a table with coffee and laptop while making notes on paper
Investing Articles

With a P/E ratio of 8 and selling for pennies, is this FTSE 250 share a bargain?

Christopher Ruane digs into a cheap-looking FTSE 250 share that sells an iconic product and considers whether it's really a…

Read more »

Warren Buffett at a Berkshire Hathaway AGM
Investing Articles

Could the stock market crash in 2025?

Our writer considers some possible drivers for a stock market crash. Rather than try to time it, he's wondering how…

Read more »