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The Fevertree share price is up 50% in a year: should I buy today?

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A selection of bottles from Fevertree Drinks
Image source: Fevertree Drinks

The Fevertree (LSE:FEVR) share price has risen 50% in the last year. Indeed, since going public in 2015, Fevertree shares are up 2,400% in price. But, for context, the current Fevertree share price of 2,590p is well below the all-time high of 4,120p, which was hit in September 2018.

I bought Fevertree for my Stocks and Shares ISA in April 2020. After the coronavirus stock market crash, I was on the lookout for shares that were trading below historical highs and were financially strong. Fevertree fit the bill, and I liked the business model. I am happy with the gain I have made so far. But, I will not be selling as I think there is more to come. I would, in fact, consider buying more at the current Fevertree share price and here’s why.

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Mixing it up

Fevertree was founded in 2003 on the premise that premium spirits were booming, but premium mixers were not. Fevertree’s slogan is “If 3/4 of your drink is the mixer, mix with the best“, and it makes sense: why buy an expensive gin only to mix it with a cheap tonic? Consumers seem to have taken heed of the advice to mix quality with quality: Fevertree’s sales increased from £102.2m in 2016 to £260.5m in 2019. Net income has also risen over the same period, from £27.5m to £58.5.

Fevertree looked to be in a good place going into the coronavirus crisis. There was plenty of cash on hand and low levels of debt. Fevertree is a capital-light business. Manufacturing and distribution are largely outsourced, leaving the company with relatively little fixed assets. This made the company’s liquidity profile appealing, with the bulk of assets tied up in things like cash and short term investments, receivables, and inventory. These assets should be easier to turn to cash in a crunch than things like property, plant, and equipment.

So I was happy that if things got tough during 2020 and beyond, Fevertree should survive and prosper once things got back to normal. 

Fevertree share price

2020 saw Fevertree take hits to revenue and net income, but the results were not as bad as I expected. Revenue fell around £8m (roughly 3%) from 2019 to 2020. Net income fell around £17m, or about 29%, over the same period. As consumers mixed more drinks at home, a pick up in off-trade sales partially offset the collapse in on-trade sales as a result of pub and bar closures in Fevertree’s biggest market, the UK. In other markets like the US, Europe, and others, Fevertree’s sales actually increased year-on-year, but probably from increasing off-trade sales. Overall, gross margins did fall in 2020. I think this means Fevertree gets better terms on sales to pubs and bars than supermarkets and the like.

Fevertree was able to increase sales in the US and other global markets during the pandemic, which bodes well for increasing sales once lockdowns are a thing of the past. With customers coming back to pubs and bars, margins should improve. My biggest concern for Fevertree going forward is whether its customers, new and old, will take their mixer preferences with them when they start drinking outside their homes again. Perhaps they won’t be so picky about their mixers. Time will tell, but I remain positive on the outlook for the Fevertree share price and would consider buying more shares for my portfolio.

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James J. McCombie owns shares of Fevertree Drinks. 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.

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