The Motley Fool

Why I still prefer this FTSE 250 stock over market darling Fevertree

Image source: Getty Images.

Yesterday’s trading update from premium mixer drinks supplier Fevertree (LSE: FEVR) was warmly embraced by investors and it’s not hard to see why. 

As my Foolish colleague Roland Head reported, sales rocketed by 39% in 2018 — far above that expected by city analysts. And while the UK remains its biggest market, the company is clearly making strides in growing the brand overseas. 

5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!

According to one leading industry firm, the 5G boom could create a global industry worth US$12.3 TRILLION out of thin air…

And if you click here we’ll show you something that could be key to unlocking 5G’s full potential...

As good as the numbers were, however, I’d still be more likely to buy AG Barr (LSE: BAG) — owner of brands such as IRN-BRU and Rubicon — at the current time. Let me explain.

Still sweet

This morning’s pre-close update to its financial year (ending 26 January) was positive enough with the company stating that revenue is now likely to be up around 5% to roughly £277m as a result of “continued positive trading across the period“.

Thanks to this (and tight control on costs), the £900m cap remained confident of delivering increased profit in line with management expectations.

Despite needing to overhaul its range in response to the implementation of the new sugar tax last April, the Cumbernauld-headquartered firm also commented that it had managed to increase its market share in the UK thanks to “strong trading execution across our core brands and the continued success of our key innovation“.

As well as the above, the mid-cap reflected that its balance sheet “remains robust” and that its £30m share repurchase programme, although running behind schedule, should complete within 2019.

Better value?

In contrast to many stocks in the market, AG Barr had a very good 2018. One year ago, the shares were 639p a pop. Before markets opened today, the very same stock was 25% higher in value. Given the volatility that hit the markets last October, I think that’s about as good a performance as its owners could expect. 

That said, the stock was down in early trading this morning, suggesting that a lot of positive news was already priced in and some traders, perhaps motivated by the firm’s mild warning on the possibility of  “further regulatory intervention“, were content to take profits and move on.

That’s not altogether unreasonable considering that the stock trades on 24 times earnings for the next financial year. The 2.1% yield, while covered twice by profits, probably isn’t enough to keep those also wanting income from their investments excited either, especially as there are many companies in the market returning far more cash to their owners. 

Nevertheless, the fact remains that this valuation — while arguably rich — is still significantly below that awarded to Fevertree.

Too much fizz

Following yesterday’s double-digit percentage boost to the share price, the AIM-listed company’s stock changed hands for a little over 51 times earnings as markets opened. That’s seriously high, even for a company with such a positive outlook, strong brand and savvy management.

This surely means that Fevertree can’t afford any slip-ups in its overseas expansion (particularly in the potentially very lucrative US). As holders of another previously-adored growth stock recently found out, however, this strategy doesn’t always work out as quickly as hoped. 

Fevertree is, without doubt, a quality company. Nevertheless, I’d still pick AG Barr’s stock if forced to choose between the two.

Since political and economic uncertainty persists, I’m not convinced we’ve seen an end to the flight from highly-rated growth stocks just yet.

“This Stock Could Be Like Buying Amazon in 1997”

I'm sure you'll agree that's quite the statement from Motley Fool Co-Founder Tom Gardner.

But since our US analyst team first recommended shares in this unique tech stock back in 2016, the value has soared.

What's more, we firmly believe there's still plenty of upside in its future. In fact, even throughout the current coronavirus crisis, its performance has been beating Wall St expectations.

And right now, we're giving you a chance to discover exactly what has got our analysts all fired up about this niche industry phenomenon, in our FREE special report, A Top US Share From The Motley Fool.

Click here to claim your copy now — and we’ll tell you the name of this Top US Share… free of charge!

Paul Summers 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.

Where to invest £1,000 right now

Renowned stock-picker Mark Rogers and his select team of expert analysts at The Motley Fool UK have just revealed 6 "Best Buy" shares that they believe UK investors should consider buying NOW.

So if you’re looking for more top stock ideas to try and best position your portfolio in this market, then I have some good news for your today -- because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply enter your email address below to discover how you can take advantage of this.