Fevertree Drinks plc and Just Eat plc can still make you rich

This is why I think there’s more to come for investors from Fevertree Drinks plc (LON: FEVR) and Just Eat plc (LON: JE).

| 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.

Premium mixer drinks supplier Fevertree Drinks (LSE: FEVR) has been one of those stocks capable of transforming the lives of investors brave enough to cling tightly to their shares for the ride.

At today’s share price around 2,447p, the stock is up a cork-popping 1267% since January 2015 as the firm rapidly penetrated the market for better-tasting mixers in the UK and across the world. But keeping the faith with a stock like this is not easy for value-schooled investors when the price-to-earnings (P/E) ratio never drops below high double digits.

Spectacular increases in earnings

Increases in earnings over the last four years have been spectacular – 50%, 303%, 106%, and 45% for the current year – and in July, with the interim results, the firm said growth in all regions is being driven by the gathering pace of ‘premiumisation’ and ‘mixability’.

Stories like this can ‘top out’, of course, and once-fast-growing companies can go ex-growth, which often leads to a valuation write-down. Yet there’s no sign of that happening with Fevertree. If anything, the firm looks like it’s only just gaining the critical mass that could help it roll forward from here like an unstoppable juggernaut.

The recent half-year period saw 47% of sales come from the UK, 31% from continental Europe, 18% from the USA, and 4% from the rest of the world. I reckon the remaining potential for market-share gains abroad is mind-boggling. Meanwhile, the most up-to-date figures for revenue growth remain exciting. In the first half of the trading year, revenue in the UK grew 113% compared to a year ago, rose 63% in Europe, lifted 43% in the USA, and drove 45% higher in the rest of the world.

Overcoming mental hurdles

My feeling is that this company has much more to deliver its shareholders in the years to come, but how can we overcome the mental hurdle of the firm’s 2018 forward P/E rating running just below 64? One way is to focus on the directors’ ongoing narrative, and the most recent advice is that the firm is trading “materially ahead of its expectations.”

We find another stock market high flyer in takeaway food delivery digital marketplace provider Just Eat (LSE: JE). Since the beginning of 2015, the shares are up around 119% at today’s 695p. Not the performance of Fevertree, but Just Eat’s valuation isn’t as high either. The forward P/E rating runs at a mere 30-or-so for 2018, but the record of growth in earnings stands up well compared to Fevertree’s – 200%, 58%, 85%, and 38% for the current year.

Image problem?

City analysts following the firm expect earnings to grow by a further 37% during 2018, which makes the valuation look fair if growth can continue. However, my guess is that the story has an image problem.

I find it harder to believe Just Eat’s growth outcome than I do Fevertree’s. Yet the firm’s operations cover the UK, Australia, New Zealand and developing markets around the world, and all regions put in high double-digit revenue gains in the interim report compared to a year ago. The directors again uttered those magic words ahead of management’s expectations”, and I reckon the stock could go on to reward investors yet further from here.

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.

Kevin Godbold has no position in any of the shares mentioned. The Motley Fool UK has recommended Just Eat. 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

Mature Caucasian woman sat at a table with coffee and laptop while making notes on paper
Investing Articles

10% dividend growth! 2 FTSE 100 stocks tipped to supercharge cash payouts

These FTSE 100 stocks have strong records of dividend growth. And they're expected to keep on delivering, as Royston Wild…

Read more »

Investing Articles

Down 17% in a month and yielding 7.39%! Is this FTSE 100 share a screaming buy for me?

When Harvey Jones bought Taylor Wimpey last year he thought this FTSE 100 share was a brilliant long-term buy-and-hold. Has…

Read more »

Investing Articles

Here’s how I’m using a £20k ISA to target £11k+ in income 30 years from now

Is it realistic to put £20k in an ISA now and earn over half that amount every year in passive…

Read more »

Young black colleagues high-fiving each other at work
Investing Articles

If I could only keep 5 UK stocks from my portfolio I’d save these

Harvey Jones is running through his portfolio of top UK stocks to see which ones he couldn't bear to do…

Read more »

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

I’m aiming for a million buying unexciting shares!

By investing regularly in long-established, proven and even rather dull businesses, this writer plans to aim for a million. Here's…

Read more »

Investing Articles

3 things to consider before you start investing

Our writer draws on his stock market experience to consider a few vital lessons he would use to start investing…

Read more »

Investing Articles

Will this lesser-known £28bn growth stock be joining the FTSE 100 soon?

As the powers that be plan a reorganisation of Footsie listing rules, this massive under-the-radar growth stock could find its…

Read more »

Investing Articles

Fools wouldn’t touch these 5 FTSE 350 flops with a bargepole – how come I own 3 of them?

Harvey Jones took a chance on three struggling FTSE 350 stocks in the hope that they'd stage a dramatic recovery.…

Read more »