A soaring growth stock I’d buy ahead of Fevertree Drinks plc

Fevertree Drinks plc (LON: FEVR) shares have soared, but is this growth stock set to overtake them?

| 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.

The growth story at Fevertree Drinks (LSE: FEVR) has been impressive. The shares have quadrupled over the past four years and have soared by 1,300% over five years — and all the company makes is drinks mixers.

But they’re big business these days, with trendy drinkers wanting all sorts of variations rather than just the traditional soda water, tonic, etc.

But three things convince me the bull run is coming to an end, and I’d sell if I owned any.

You know the idea that when even the folks down the pub are talking about a stock, it’s time to sell? I witnessed the equivalent on TV last week — I wasn’t paying attention, but some ‘reality’ person said their favourite drink would be something or other “with a nice Fevertree mixer.” 


Another thing is that I really don’t see a defensive moat around Fevertree’s business model, and nothing to prevent other makers moving into the premium mixer market (which they’re already doing).

Finally, it’s the share price chart itself and the shares’ fundamental valuation. I’ve seen the same thing happening to growth darlings just too many times, and it almost always ends in a crash after the climb. Fevertree shares have already shown their first sign of weakening with a dip towards the end of 2017 — it’s come back, but that often signals the final wave of bandwagon buyers.

The initial rapid EPS growth is set to slow, with just 9% on the cards for 2018 — yet with the shares at 2,316p, we’re still looking at a forward P/E of 54. I really see that as overvalued now, and I’d walk away.

Another climber

Healthcare software specialist Craneware (LSE: CRW) has been a success for shareholders too, with its shares up fourfold in five years to 1,715p.

Its earnings growth has been at a more leisurely pace than Fevertree’s, but investors have high hopes of it continuing for many years to come. And I reckon a forward P/E of 35 based on June 2019 forecasts has just become a good bit more attractive.

The company has announced two new hospital contracts with new US customers, and they look like they could have some serious potential. We don’t know the names of them yet, but one is “a large blue-chip healthcare provider” which will use Craneware’s products in its 20 hospitals.

Craneware says this will be as “an integral part of this provider’s major system change“, which sounds like it’s in at the beginning and could be a long-term partner. The deal should bring in revenue of around $5m in its initial multi-year term.

The second new agreement, estimated to be worth around $3.5m in its initial term, is with “an innovative surgical hospital” and involves the supply of a number of Craneware’s software packages.

Continuing trend

This comes on the back of a number of other contract wins, with the most recent announced in January expected to provide $16m in revenue over five years.

At the same time, the firm told us it expects EBITDA to come in 15%-18% ahead for the six months to December 2017. The balance sheet looks good too, with cash of more than $50m on the books.

There’s clearly some momentum behind Craneware right now — in its share price, and more importantly, in its contract developments too. I see good long-term value.

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.

Alan Oscroft has no position in any of the shares mentioned. The Motley Fool UK has recommended Craneware. 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.

More on Investing Articles

Investing Articles

Up 14% in 2024, what’s next for the Lloyds share price?

This Fool takes a closer look at what prompted the Lloyds share price to rise this year, and offers her…

Read more »

Investing Articles

5 FTSE 100 stocks to consider for a lifetime of passive income

I see lots of cheap dividend stocks in the FTSE 100 right now, but prices are starting to rise. Here's…

Read more »

Man writing 'now' having crossed out 'later', 'tomorrow' and 'next week'
Investing Articles

3 growth stocks I’m desperate to buy as the FTSE 100 dips

Never waste a dip, says Harvey Jones. Three of his favourite growth stocks have fallen over the last month and…

Read more »

Investing Articles

I’d use a £10K ISA to try and generate £900 in dividends annually like this!

Christopher Ruane explains how he would invest a Stocks and Shares ISA in blue-chip companies to try and set up…

Read more »

Investing Articles

Here’s how I’d build a second income stream worth £1,228 a month by investing £10 a day!

A second income stream could come in handy later in life. This Fool explains how she’d build one by investing…

Read more »

Investing Articles

5 FTSE 250 stocks I’d buy for a lifetime of passive income

Here's why I think the FTSE 250 could be the best UK stock market index to go for in 2024…

Read more »

Union Jack flag triangular bunting hanging in a street
Investing Articles

Buy cheap FTSE shares, says HSBC

Analysts at HSBC have upgraded their rating of FTSE stocks and reckon the blue-chip UK index could carry on powering…

Read more »

Couple working from home while daughter watches video on smartphone with headphones on
Investing Articles

It could be worth buying the dip for this FTSE 250 stock, down 7% today

Jon Smith spots a sharp drop in a FTSE 250 stock but explains why this could just be a blip…

Read more »