The Fevertree Drinks (LSE: FEVR) share price ascent over the past few years has really been something. Its value has swelled by some 57% in 2018 so far alone, a heady rise that I had been tipping since I first covered the stock back in November 2016.
Many share pickers may now be baulking at the idea of investing in the drinks mixer manufacturer today, however, on account of its sky-high valuation. At current prices around £35.70 per share, Fevertree carries a forward P/E ratio of 73.9 times (as well as a corresponding PEG reading of 3.4 times).
This would be a great shame, in my opinion, as I can see plenty of reason to expect the AIM business to keep soaring to new heights. Despite its high valuation I see plenty of upside to Fevertree’s investment case, and reckon it has all the tools to help you retire rich.
A growth and income hero
City analysts are certainly expecting it to continue the roaring earnings growth of recent years. A 22% bottom line advance is forecast for 2018, and a further 19% increase is estimated for next year.
These predictions also mean that the drinks colossus remains a compelling income share too. The business has lifted dividends by a staggering 3,450% since 2014, culminating in last year’s total payout of 10.65p per share. And the number crunchers are expecting yet more heady dividend expansion, encouraged by Fevertree’s decision to hike the interim dividend by 40% to 4.22p last month.
Current estimates are suggestive of a 12.2p per share dividend in 2018 and a 15p payment next year. While yields may not be mighty, ringing in at 0.3% and 0.4% for 2018 and 2019 respectively, the rate at which Fevertree is expected to keep raising payouts should still make the ears of long-term investors prick up.
Catch the fever
And who would bet against it continuing to report stunning profits and dividend expansion long after 2019? Not me, and certainly not after viewing the firm’s half-year results.
Fevertree saw revenues blast 45% higher between January and June, to £104.2m, a result that drove adjusted EBITDA up by 35% to £34m. Sales in its core UK marketplace rose 73% in the first half. And the rate at which the mixer category is growing in its home territory — up by almost a third in the year to June, making it the fastest-growing carbonated soft drinks segment — shows that the trading environment is likely to remain highly favourable.
What’s more, such fine sales possibilities are not confined to these shores. Sales performance in its other major geographical regions of Continental Europe and the US may be more modest than those in Britain, rising 15% and 23% respectively during January-June at constant currencies. But Fevertree continues to build its distribution networks across these destinations to help it put the pedal down.
The ‘premium’ end of the broad beverages segment is proving to be increasingly big business around the world, and this, allied with the migration that is seeing drinkers gulp down long mixed drinks in increasing quantities, makes Fevertree a compelling investment destination today.
