Is Stock Spirits Group PLC A Better Buy Than SABMiller plc?

Should you ditch SABMiller plc (LON: SAB) and buy Stock Spirits Group PLC (LON: STCK)?

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.

Shares in Stock Spirits (LSE: STCK) have risen by around 6%, after the alcoholic beverages company released a quarterly trading update for the period to March 31. Encouragingly, revenue grew by 29% versus the same period of last year and Stock Spirits was able to turn its operating profit round from a loss of €4.2m last year to a profit of €6.3m in the corresponding quarter of the current year.

Bright prospects

A key reason for this was a return to growth in Poland, which is a key market for the company. Its top line increased rapidly in the region and it remained the leader in the important flavoured vodka category, as well as having the no.2 position in the total vodka space. Furthermore, Stock Spirits also delivered upbeat performance in Italy and Czech Republic, with the continued growth of the Fernet brand in the latter offering bright long term prospects for the business.

However, Stock Spirits’ trading update also included details of a loss of market share in Poland. It dropped from 36.9% to 29.5% and this could act as a brake on the company’s long term growth potential. Furthermore, there is a degree of uncertainty regarding Stock Spirits’ management team, with there being various reports of calls by a major shareholder for the company’s CEO to be replaced. Clearly, this could cause volatility in the company’s share price in the near term.

With Stock Spirits forecast to increase its bottom line by 6% in each of the next two years, its current valuation appears to be rather rich. That’s because it trades on a price to earnings (P/E) ratio of 16.2, which equates to a price to earnings growth (PEG) ratio of 2.7. This indicates that there is a lack of capital growth potential on offer and that Stock Spirits may be a stock to watch, rather than buy, at the present time.

More downside than up

Meanwhile, SABMiller (LSE: SAB) continues to await the outcome of regulatory decisions regarding its proposed acquisition by AB InBev. The latest news on the deal includes AB InBev stating to the EU Commission that it intends to sell off SABMiller’s premium European brands as it seeks to allay concerns regarding the effects of the combination on competition. This follows similar statements regarding other brands in the SABMiller portfolio as the deal is scrutinised by multiple regulatory bodies across the globe.

In terms of SABMiller’s share price, it has ticked upwards since the deal was announced and there appears to be little upside for new investors. If the deal goes through at the original offer price of £44 per share, that means there is just over 4% potential upside. And with the potential for delays due to competition concerns, there seems to be more downside than upside at the present time. As such, and while SABMiller is an excellent business, it may be best to look elsewhere for a superior risk/reward ratio at the present time.

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.

Peter Stephens has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

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 »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 things that could push the Lloyds share price to 60p and beyond

The Lloyds share price has broken through 50p. Next step 60p? And then what? Here are some thoughts on what…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

£1,000 in Rolls-Royce shares a year ago would be worth this much now

Rolls-Royce shares have posted one of the best stock market gains of the past 12 months. But what might the…

Read more »

Investing Articles

Are HSBC shares a FTSE bargain? Here’s what the charts say!

There are plenty of dirt-cheap FTSE 100 banking stocks for investors to choose from today. Our writer Royston Wild believes…

Read more »

Three signposts pointing in different directions, with 'Buy' 'Sell' and 'Hold' on
Investing Articles

Just released: Share Advisor’s latest ‘Hold’ recommendation [PREMIUM PICKS]

In our Share Advisor newsletter service, we provide buy, sell, and hold guidance for our universe of recommendations.

Read more »

Investing Articles

Investing £5 a day could help me build a second income of £329 a month!

This Fool explains how £5 a day, or one less takeaway coffee, could help her build a monthly second income…

Read more »

Smart young brown businesswoman working from home on a laptop
Investing Articles

2 FTSE income stocks investors should consider buying in April

Income stocks are a great way to build wealth. Our writer details two picks she believes investors should consider snapping…

Read more »

Investing Articles

What might the 5-year price chart tell us about BT shares?

Christopher Ruane considers what clues the long-term performance of BT shares might offer him about business performance and whether to…

Read more »