We all love a good multi-bagger, the type of stock that can turn relatively small sums into something huge. Just one could transform your portfolio, and give your retirement plans a massive boost.
The following two have been among the most exciting stocks on the market in the past five years, but I would only buy one of them today.
The Boohoo Group (LSE: BOO) share price is up an incredible 1,182% in just five years, which would have turned £10k into more than £128k, which is serious growth.
The Boohoo share price has maintained its momentum, up 71% over the past 12 months. Investors who bought a year ago fearing it might be running out of momentum will be celebrating today. It is now crowned King of AIM, with a market cap of £3.68bn.
The big attraction of Boohoo, which owns brands Karen Millen, Nasty Gal, PrettyLittleThing, Coast and MissPap, is that it has set its sights on becoming a global retail giant. This is always a high-risk strategy, one that has confounded Tesco and many others, and failure could bring the share price crashing down. Success, on the other hand, would send it shooting to the stars.
Boohoo is priced for growth, trading at 74.1 times forward earnings. However, City analysts expect those earnings to continue to grow by an impressive 33%, 26% and 24% over the next three years, which if achieved, would pull down its valuation to a more modest 37.3 times earnings.
Its price-to-earnings growth ratio of just 1.9 looks far from demanding. Given that it has a meagre 0.4% share of the US and EU clothing market, Boohoo could just pull it off. It has little margin for error though.
Craft mixer specialists Fevertree Drinks (LSE: FEVR) has lost its fizz, as its explosive growth phase seems to be over. Over five years, it would still have turned £10,000 into £76,887, but if you bought 12 months ago, your £10k would be worth closer to £6k. Ouch!
The Fevertree share price dropped 27% on Monday alone, as the group downgraded its profit growth projections, blaming “subdued” festive trading in the UK. As a gin and tonic fan myself, I think Fevertree could struggle to build UK sales from here. Its novelty value has subsided, competition has increased, Schweppes has sharpened up its act, and the gin craze cannot last forever.
US sales are rising at a faster pace, up 33% to £47.6m, with Europe and the rest of the world up 16% and 32% to £64.4m and 15.8m, respectively. It needs to build on these to compensate for the slowing domestic market, which still makes up half of revenues, but it won’t be easy.
Today could be a tempting entry point, given that Fevertree’s dizzying valuation has been trimmed to ‘just’ 32.3 times forward earnings, and those earnings are still projected to grow a solid 12% in 2021, and 13% the year after. However, I would rather buy into Boohoo’s momentum.
Alternatively, start hunting for tomorrow’s multi-bagger instead.
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Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK has recommended boohoo group and Tesco. 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.