Fevertree Drinks (LSE: FEVR) has slumped dramatically during the past 52 weeks. After reaching a record high of 4,120p in September 2018, the mixed-drinks firm endured a torrid sell-off during Q4, as its share price crashed to a low of 2,106p in late December 2018. Despite registering a recovery in the first half of 2019, rising to 3,203p on 2 May, markets returned to their previous bearish sentiment, as the Fevertree shares closed down -2.29% at 2,304, on 21 June.
The firm, founded by serial entrepreneurs Charles Rolls and Tim Warrillow in 2004-2005, has seen its sparkle fade after creating such a buzz on the stock market. Analysts who remained bearish on the stock, decrying it as a one-trick pony that simply got lucky, felt a sense of satisfaction as the slump unfolded. However, other analysts recognised that the fundamentals and financials were strong,
Morgan Stanley set a price target of 4,000p on 14 June, believing the shares are worth buying, as they could outperform the broader market and other equities in its sector. Royal Bank of Canada has broadcast a 3,500p target and both targets would represent significant upside growth from Friday’s close. Five major banks and brokers have an average target price of 3,500p, with three out of the five recommending Fevertree as a buy, the other two a hold.
Stripping back the bark of Fevertree
The firm is much more than simply a supplier of a famous tonic mixer. It supplies a range of Indian, elderflower, clementine and Mediterranean tonic waters. Sicilian lemonade, Madagascan cola, ginger beer and ginger ale have been added to the impressive range. The rise in the popularity of gin in all its flavours and manifestations over recent years undoubtedly increased the profile and appeal of the firm. Many tonic aficionados and water sommeliers (yes, there are such professions) rate Fevertree’s mixers as some of the best.
The firm sells into 75 countries, sold 406 million bottles and 128 million cans in 2018. According to the firm, 90% of top restaurants worldwide stock and sell the brand. It is undoubtedly a competitor and threat to the major quoted drinks firms. With a current market capitalisation of circa £2.74bn, it could represent a logical and relatively cheap acquisition.
Since its market debut in November 2014, Fevertree has posted an impressive rise in revenue and profits: revenue up to December 2014 was £34.68, with pre-tax profit at £2.52m. Fast forward to the December 2018 report and revenue came in at £237.45, a rise of 40% on 2017, with pre-tax profit at £75.58, a rise of circa 35%. The dividend is close to 14.50p per share. Back in December 2014 its P/E ratio was 112.66, but that figure has steadily fallen to a more realistic current level of 41.20. That level has receded since January, when another fellow Fool Royston also recommended Fevertree.
The firm has borrowings of £6.08m and total liabilities of £42.22m. If you’re into basic technical analysis, when observed on a daily chart the stock is oversold, based on the relative strength indicator. The solid roots of Fevertree, its impressive set of figures and expansion ambitions, added to analyst recommendations, marks it out as a buy or hold in my opinion.
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Paul Holmes has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.