One super growth stock I’d buy before Diageo plc

Diageo plc (LON: DGE) is buzzing again but this smaller alternative has put in a premium performance, says Harvey Jones.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

I have always been wary of momentum stocks, worrying that the flow of fun will dry up shortly after I add a drop to my portfolio. Here’s one that still seems to have plenty of fizz in the bottle.

Just the tonic

Premium drinks mixer supplier Fevertree Drinks (LSE: FEVR) has thrown quite a party since its shares started trading at around 160p in November 2014. Today they trade at 1,700p, making this a 10-bagger in a mere two-and-a-half-years. I have looked at this stock before and was worried about joining the party too late, but I shouldn’t have been so shy. Its share price is up another 30% in the last three months alone.

Fevertree, which in today’s AGM statement describes itself as “the world’s leading supplier of premium carbonated mixers”, is understandably optimistic for the future. Chairman Bill Ronald talking up “another exceptional year” as the group continues to gain market share in both the on- and off-trade, and across all its markets.

Give me Fever

This £2bn company is a pioneer and market leader in the rapidly expanding premium mixer category. It has been amply rewarded for spotting the gin revolution’s early potential. As more artisan gin brands became available, it made sense that drinkers would want a wider choice of mixers than the limited mainstream options, packed with cheap artificial sweeteners and flavours. 

Its board said today that full-year 2017 results should be comfortably ahead of current market expectations, with further progress to be reported in its July interims. The share price is largely unstirred, perhaps because Fevertree now trades at a premium valuation of more than 70 times earnings. That is quite a stretch, even with earnings per share (EPS) forecast to rise a healthy 9% this year and 11% next. Fevertree is unlikely to 10-bag from here but should continue to bubble away nicely.

Spirited performance

Global spirits giant Diageo (LSE: DGE) is a very different creature altogether, with a market cap of a massive £57.77bn, and a vast global range of spirits brands, both mainstream and premium. After a patchy few years its share price is buzzing again, rising 22% in the past 12 months.

Last week chief executive Ivan Menezes said the company remains on course to deliver a stronger financial performance, consistent with its medium-term objective of mid-single-digit organic top-line growth. He puts recent successes down to putting the consumer at the heart of the business, better brand building, innovation and a focus on discipline and efficiency.

Tasty mixer

Sales have been rising strongly lately, leaping 15% in the six months to 31 December, with operating profits up 28% to £2.06m, fuelled by favourable exchange rates. Like Fevertree, Diageo doesn’t come cheap, trading at more than 25 times earnings. The yield is relatively low at 2.58% but management remains progressive, recently hiking it 5% to 23.7p per share.

Momentum is with Fevertree but Diageo is now setting the pace, with forecast EPS of 18% in the year to 30 June 2017, followed by a further 9% the year afterwards. Together they could make the perfect combination.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Harvey Jones has no position in any shares mentioned. The Motley Fool UK has recommended Diageo. 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.

More on Investing Articles

Investing Articles

As the Kingfisher share price drops on Budget fallout, should I buy?

The Kingfisher share price was on a strong 2024 run until the DIY group warned us of the possible effects…

Read more »

Investing Articles

2 passive income shares to consider for December 2024 onwards?

These are popular UK shares investors often buy for passive income from dividends, but are they actually good investments now?

Read more »

Young black woman using a mobile phone in a transport facility
Investing For Beginners

Down 34% in a month, is this FTSE 100 stock going to be demoted?

Jon Smith flags a FTSE 100 company with a recent poor performance he believes could see it soon drop out…

Read more »

British union jack flag and Parliament house at city of Westminster in the background
Investing Articles

Is the Diageo share price set to make a stellar comeback in 2025?

Harvey Jones thought the Diageo share price looked good value when he bought it after last year's profit warning, but…

Read more »

Investing For Beginners

It’s down 50%. Would it be madness for me to buy this value stock?

Jon Smith notes down a household value stock in the FTSE 250 that he thinks can rally in the long…

Read more »

Midnight is celebrated along the River Thames in London with a spectacular and colourful firework display.
Investing Articles

Up 70% and 80%! I’m thrilled I bought these two red-hot UK stocks exactly 1 year ago

Harvey Jones bought two UK stocks at the end of November last year, and both have smashed the market in…

Read more »

Investing For Beginners

Consider filling an empty Stocks and Shares ISA like this to hit five figures of second income

Jon Smith outlines how he could use stocks with both income and growth prospects to grow a Stocks and Shares…

Read more »

Investing Articles

These FTSE 100 shares could soar over the next year

FTSE 100 shares show strong potential as rate cuts loom. History shows stocks could gain more than 70% in the…

Read more »