Mixing it up
Two individuals saw a gap in the market in 2004. Both working in differing parts of the drinks industry, they saw that premium spirits were plentiful, but there was no mixer equivalent — and Fevertree was born.
By 2014 Fevertree floated on the London Stock Exchange and it currently resides on the FTSE AIM index. It is a great growth story in my opinion, and I do like a good growth journey.
As I write, shares in Fevertree are trading for 2,408p per share. This time last year I could buy shares for 8% cheaper for 2,217p per share.
I do think that Fevertree’s share price is not the cheapest but my affinity for Fevertree stems from its growth to date, performance, and the fact I believe it can grow further. The majority of UK shares I like have similar characteristics.
Performance and growth
Last week Fevertree released a FY21 half-year pre-close trading update. It confirmed strong sales growth across all key markets. Revenue grew by 39% compared to the same period last year. This was ahead of expectations, which is always positive. I believe this was aided by reopening of pubs, bars and restaurants from under government restrictions.
In addition to these financial highlights, Fevertree has seen growth in newer markets. This is especially the case in the US which could accelerate its growth if it were to increase market share there.
As well as this recent update, Fevertree has an excellent track record of performance. Reviewing Fevertree’s past performance, revenue increased year-on-year for three years between 2017 and 2019. In 2020, revenue was just below 2019 levels primarily due to the impact of the pandemic, which is to be expected. In addition to healthy revenue, it has been keeping a healthy balance sheet with cash flow increasing year-on-year for the past four years. Furthermore, annual sales have risen by over 30% per year since 2015.
I understand that past performance is not an indicator or a guarantee of future performance. I still use it as a gauge when doing my research when investing in my portfolio.
UK shares have risks and reward
I have three concerns with investing in Fevertree. Firstly, there have been logistical issues for Fevertree and everyone else recently. There is a high demand and low supply of logistical services, which could affect Fevertree’s business and financials over time. Management even pointed towards these in the update last week.
Next, Fevertree may have been one of the innovators of premium mixers but it is now in a market where competition is increasing all the time. This competition will eat away at its market share which could affect its bottom line.
Finally, if new restrictions came into force due to rising cases of Covid-19, Fevertree could see a repeat of 2020 where pubs, bars, and restaurants could close for a substantial amount of time. This would affect sales and financials.
Overall, I believe that Fevertree is a good growth stock. It has an excellent product and a track record that shows it can perform consistently and grow. If I had £1,000 to invest in UK shares I would buy Fevertree shares.