I remember the days when investors got in a real sweat over premium fizzy drinks maker Fevertree Drinks (LSE: FEVR).
The AIM-listed company captured the zeitgeist, as the nation went gin crazy and Fevertree supplied the upmarket tonics to match. Its shares flew from 165p when floating in November 2014 to peak at 3,863p in September 2016.
That’s an increase of a mind-boggling 2,241%, which would have turned a £10,000 investment into a life-changing £234,100. Sadly though, many latecomers will have found themselves nursing an almighty hangover.
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Is the share price in a sweet spot?
Today, Fevertree shares trade at around 795p, a drop of 79.4% peak to trough. And the shares continue to decline, down 27.11% over 12 months.
I resisted the temptation to jump on the share price bandwagon. I’m always wary when a stock flies so high, so fast, as investors can find themselves chasing gains that have already been made.
I haven’t given Fevertree much thought for ages but recently spotted a broker suggesting it was good value and decided it was time to investigate. I like buying stocks that have fallen out of favour and are ripe for a rebound. So is this it?
Fevertree’s full-year 2024 results, published on 12 September, show revenue growth of 2% year on year at constant currency. That’s nothing to get excited about although as the board pointed out, that was despite the “subdued consumer backdrop and poor weather in the second quarter across the UK and Europe”.
The group posted a stronger July and August, the two months following these results, with growth of 13%. Fevertree is also expanding nicely in the US, extending its market share and number one position in Tonic Water and Ginger Beer.
In another positive, operational improvements boosted gross margins by 520 basis points to 35.9%. The board also highlighted Fevertree’s strong balance sheet, which allows it to invest for growth.
Premium product, pricey valuation
These results aren’t mind-blowing, but they aren’t bad either. Fevertree is also diversifying away from gin mixers into rum, vodka, cocktails, margarita and Bloody Marys. This seems wise as gin mania will inevitably ebb.
Fevertree has held on to its market position and I’d expect revenues and profits to sparkle when interest rates fall and the economy revives. The problem is that we don’t know when that happy day will arrive.
The board is optimistic, and anticipates being in a position to return surplus cash to shareholders during 2025. While dividend per share growth has been slow lately, at least it has grown, as this chart shows. The forecast yield is 2.1%.
Chart by TradingView
Revenues have steadily edged upwards, too, as my table shows.
| 2019 | 2020 | 2021 | 2022 | 2023 |
| £260.5m | £251.1m | £311.1m | £344.3m | £364.4m |
I assumed that following the crash, Fevertree would be cheap. Yet its shares still trade at a whopping 60 times trailing earnings. That seems expensive to me. While I think the shares will come good, they may have further to fall, first. I’ll stick the stock on my watch list, but not on my buy list.
