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Fevertree Drinks plc’s share price is still rising. Should you pile in too?

I first wrote about Fevertree Drinks (LSE: FEVR) during the opening exchanges of 2017 and, had you splashed the cash on the beverages behemoth back then, you would now be very happy indeed.

Since then the manufacturer of premium mixers has seen its market value swell an impressive 142%. And as the fashionableness of its drinks takes off across the globe I believe the AIM-quoted business has much, much further to go in spite of its heady valuation (a forward P/E ratio of 63.1 times).

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Fevertree saw group revenues detonate by an estimated 66% in 2017 to £169m thanks to hearty growth across its all regions. Despite toughening conditions for the wider British retail sector the drinks star still saw sales in its core market leap 96% thanks to market share grabs as well as the fruits of a rapidly-expanding mixers segment.

And looking elsewhere, it saw sales in Continental Europe and the USA jump 44% and 39% respectively last year, while aggregate turnover in its other foreign territories rose 57% year-on-year.

It is not surprising that City analysts expect the company to keep earnings growing at a sprightly rate, and rises of 10% and 17% are forecast for 2018 and 2019. With mixers demand stomping higher the world over and Fevertree investing heavily in its operations, it is not difficult to envision profits continuing to detonate long into the future.

Irn giant

I would also encourage those seeking a slice of the beverages market to take a sip of AG Barr (LSE: BAG).

The maker of much-loved products like Irn Bru has long been a reliable growth generator and, even though the sugar tax was introduced last week, City analysts do not expect this record to screech to a halt.

While Barr is taking a bit of a chance by reformulating the recipes of its flagship brands to avoid having to hike prices to protect its margins, a difficult alternative is maintaining the status quo as consumer spending power comes under the cosh. As a result, Barr has been busy reconfiguring its product portfolio in light of the tax and 99% of its brands now fall outside the remit of the levy.

Despite the changes, I am confident that the popularity of its much-loved labels means that the FTSE 250 company should continue to grow revenues, and the proven success of new product lines over the past couple of years emboldens my faith that demand for its soft drinks should remain robust.

This is certainly the take of the number crunchers who expect Barr to consequently print earnings expansion of 7% and 3% in the years to January 2019 and 2020 respectively. This means that dividends are likely to keep growing too — current estimates predict rewards of 16.4p for this year and 16.7p for fiscal 2019, resulting in chunky yields of 2.4% and 2.5% respectively.

Barr’s forward P/E ratio of 20.1 times might be pricey on paper. However, I believe the supreme brand power of its products, and therefore its decent earnings visibility, makes the beverages giant worthy of such a premium.

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