This is what I’d do about the Fevertree Drinks share price!

The Fevertree share price has slumped to multi-month lows this week. Is this a brilliant dip-buying opportunity for UK share investors like me?

| 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 Fevertree Drinks (LSE: FEVR) share price has taken a mighty whack over the past couple of days. Since the release of full-year results on Thursday the mixers manufacturer has lost almost a fifth of its value. Fevertree shares are now trading at their cheapest since early November around £21 each.

Remember, though, that the Fevertree share price is still up a whopping 125% over the past 12 months. Here’s why I would — and wouldn’t — buy Fevertree shares for my own Stocks and Shares ISA today.

Positive omens for the Fevertree share price

There are several reasons why I think the Fevertree share price could rebound strongly:

#1: The leisure sector reopens. Demand for Fevertree’s drinks took a hit due to Covid-19-related lockdowns across its major markets last year. Revenues at the firm dropped 3% year on year to £252.1m and pre-tax profits tanked 29% to £51.6m. However, a steady fall in infection rates in Fevertree’s core UK and US markets is fuelling hopes that bars and restaurants in these regions will reopen en masse soon, drawing a line under the company’s recent woes.

#2: Successful foreign expansion. The approach Fevertree has taken to foreign expansion has been highly impressive. It’s entry into the US has been hugely successful and the company now generates almost a quarter of group revenues Stateside. Sales are soaring elsewhere too (turnover outside Europe and the US soared almost 60% in 2020 despite those Covid-19-related issues).

#3: Strong future dividend growth. Even though profits slumped in 2020, Fevertree’s strong cash generation still allowed it to keep hiking dividends. The total payout rose 4% year on year to 15.68p per share. Over the past five years annual dividends here have risen by more than 150%. And City analysts expect the company to turbocharge payment growth again from this year (rewards of 19.8p and 23.1p are predicted for 2021 and 2022 respectively).

Fevertree drinks

Hold your horses

That said, there are noteworthy reasons why the Fevertree share price could extend its recent bad patch. The fight against coronavirus remains tough and any uptick in infections in the company’s core markets could demolish a strong profits rebound in 2021. Competition in the drinks mixer segment is also intense and Fevertree could lose customers to its cheaper rivals in these tough times.

What’s more, the Fevertree share price commands a lofty forward price-to-earnings (P/E) ratio of around 44 times. Such high valuations are common amongst UK shares that market-makers expect to deliver mighty profits growth. City analysts expect the AIM-quoted company to deliver profits increases of 36% and 22% in 2021 and 2022 respectively. Signs that Fevertree’s sales continue to struggle might well prompt a fresh share price collapse.

That being said, I still think Fevertree could prove a brilliant buy over the next decade. The soaring popularity of premium drinks provides shedloads of opportunity for the UK drinks share. And aggressive expansion will allow the business to capitalise on these sales possibilities to the max. I think the falling Fevertree share price presents an excellent dip-buying opportunity for me.

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.

Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has recommended Fevertree Drinks. 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

Illustration of flames over a black background
Investing Articles

2 red-hot UK growth stocks to consider buying in April

These two growth stocks are performing well, but can they continue to deliver for investors through 2024 and beyond?

Read more »

Charticle

Is JD Sports Fashion one of the FTSE 100’s best value stocks? Here’s what the charts say!

The JD Sports Fashion share price remains a wild ride during the first quarter. Could it be one of the…

Read more »

Investing Articles

Could the JD Sports Fashion share price double in the next five years?

The JD Sports Fashion share price has nearly halved in the past five years. Our writer thinks a proven business…

Read more »

Bus waiting in front of the London Stock Exchange on a sunny day.
Investing Articles

If interest rate cuts are coming, I think these UK growth stocks could soar!

Falling interest could be great news for UK growth stocks, especially those that have been under the cosh recently. Paul…

Read more »

Investing Articles

Are these the best stocks to buy on the FTSE right now?

With the UK stock market on the way to hitting new highs, this Fool is considering which are the best…

Read more »

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Can the Centrica dividend keep on growing?

Christopher Ruane considers some positive factors that might see continued growth in the Centrica dividend -- as well as some…

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

How I’d turn my £12,000 of savings into passive income of £1,275 a month

This Fool is considering a strategy that he believes can help him achieve a stable passive income stream with a…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »