The Motley Fool

Why I’d buy the Fevertree share price and this FTSE 250 stock right now

Nick Train — a.k.a. Britain’s Warren Buffett — last year initiated a position in a UK company for the first time in nine years. This was FTSE 250 stock PZ Cussons (LSE: PZC), the owner of personal care and beauty brands.

He’s recently followed this up by swooping for shares in another UK consumer goods firm. Namely, AIM-listed premium mixers maker Fevertree Drinks (LSE: FEVR).

Claim your FREE copy of The Motley Fool’s Bear Market Survival Guide.

Global stock markets may be reeling from the coronavirus, but you don’t have to face this down market alone. Help yourself to a FREE copy of The Motley Fool’s Bear Market Survival Guide and discover the five steps you can take right now to try and bolster your portfolio… including how you can aim to turn today’s market uncertainty to your advantage. Click here to claim your FREE copy now!

The Fevertree share price has fallen precipitously over the last 18 months. Meanwhile, it’s six-and-a-half years since PZC’s shares were at their peak. Here’s why I’d be happy to buy a stake in both these businesses right now.

Fevertree share price drop

Having peaked at around 4,000p in September 2018, the Fevertree share price is currently trading at 930p. This is a fall of over 75%

I last wrote about the company in summer 2018 when its shares were trading at over 3,400p. The price-to-earnings (P/E) ratio at the time was 87. I concluded: “Much as I admire Fevertree, I rate the stock a ‘sell’ today, due to that eye-watering P/E.” Increasing competition and moderating growth were among the reasons why I felt the P/E was far too fizzy.

Multi-decade growth opportunity

Fevertree is forecast to post earnings per share (EPS) of around 51p when it reports its 2019 results. Following the fall in the share price, the P/E is a far more reasonable 18.2.

Certainly, as with many businesses, the near-term outlook is highly challenging. However, I’m increasingly convinced Fevertree has created, in the words of Nick Train, “a brand of global value and significance.”

Such a brand offers investors the chance to participate in a multi-decade growth opportunity. Neither the upcoming annual report, nor the ongoing impact of Covid-19, changes the long-term story. This — and the discount share price — is why I say I’d be happy to buy a long-term stake in the business right now.

FTSE 250 stock on the rocks

While Fevertree (founded in 2005) is a company in its infancy, PZ Cussons is a long-established consumer goods firm. Its roots go back to 1884 when George Paterson and George Zochonis set up a trading post in Sierra Leone, trading goods between West Africa and the UK.

The business has grown organically and by acquisitions. Notably, PZ acquired Cussons, including leading household soap brand Imperial Leather, in 1975. In the current century, acquisitions have included niche personal care brand Original Source, and leading UK spa brand Sanctuary Spa.

However, growth has been held back in recent years by difficult economic conditions in Nigeria. This is an important market for PZC. As a result, the company’s share price has declined almost 60%, from a high of 425p in late 2013, to 173p today. It trades at a P/E of 13.7 on trailing 12-month EPS of 12.67p.

Return to growth

Notwithstanding the headwinds presented by Nigeria and Covid-19, I believe the company’s long-term future is bright. It’s recently been disposing of peripheral businesses and brands, and focusing investment on its core personal care and beauty brands, such as number one UK anti-bacterial hand wash Carex.

Management reckons the strategy “will enable us to deliver higher margin earnings, in geographies which can scale, and support the return of the group to sustainable, profitable growth.”

For the strength of its brands, and the credibility of its strategy, I rate the stock a long-term ‘buy’ today.

A top stock with enormous growth potential

Savvy investors like you won’t want to miss out on this timely opportunity…

Here’s your chance to discover exactly what has got our Motley Fool UK analyst all fired up about this ‘pure-play’ online business.

Not only does this company enjoy a dominant market-leading position…

But its capital-light, highly scalable business model has been helping it deliver consistently high sales, astounding near-70% margins, and rising shareholder returns … in fact, in 2019 alone it returned a whopping £151.1m to shareholders in dividends and buybacks!

And here’s the really exciting part…

We think now could be the perfect time for you to start building your own stake in this exceptional business—especially given the two potentially lucrative expansion opportunities on the horizon that our analyst has highlighted.

Click here to claim your copy of this special report now — and we’ll tell you the name of this Top Growth Stock… free of charge!

G A Chester has no position in any of the shares mentioned. The Motley Fool UK owns shares of PZ Cussons. 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.