Growth stocks are well represented in my portfolio, but none of them are wine-oriented investments. In fact, I rarely see wine stocks talked about within investment circles, and that likely reflects the lack of options.
Popular investments in the sector include Treasury Wine Estates and The Duckhorn Portfolio. Conglomerates such as LVMH and Constellation Brands also own wine-producing brands as part of a larger portfolio of luxury goods or beverages.
As such, many people who want to invest in wine don’t buy stocks, but invest in physical wine. Buying wine specifically to store and sell later is an alternative investment strategy for individuals who appreciate good wine and believe its value will appreciate over time.
An English wine growth stock
I’ve been a fan of Chapel Down (LSE:CDGP) for some time. So much so, that my wife and I had it served at our wedding. The company’s at the forefront of the incredibly exciting English wine scene, producing more bottles than any other UK vineyard.
For context, UK winemakers produced around 12.3m bottles in 2023, and Kent-based Chapel Down produced around 3.4m. This figure’s up considerably year-on-year, partially thanks to a bumper grape harvest. The winemaker gathered a record 3,811 tonnes last year — up from 2,050 tonnes in 2022.
While 3.4m might sound like a lot of wine, it’s small-fry compared with brands you see more widely in the supermarket. Nonetheless, its relative scale versus other UK (mainly English) producers means its less premium wines tend to be more affordable than its peers.
Chapel Down also competes with its peers in the more premium part of the market. An award-winning 2016 Kity’s Cote blanc de blancs would set you back £125.
This pricing also reflects the immense quality English wines offer and conveniently-place vineyards like Chapel Down are also in pole position to benefit from premium buying trends. When it comes to wine, millennials and Gen Z are happy to spend more and try new things.
Risks and concerns
Chapel Down’s a small-cap stock. It’s just out of penny stock territory with a market-cap of £111m, but it still represents a risk. Small-cap stocks tend to demonstrate more volatility than their peers.
It’s also not particularly cheap. Chapel Down trades at 70 times earnings for 2023. Moreover, detailed forecasts are hard to come by in this part of the market. Positively, however, management has pointed to double-digit revenue growth for 2024.
The bottom line
This stock has a unique value proposition. If someone have between 1 and 1,999 shares, they get 25% off wines. If they have over 2,000 shares, they get 33% off. In short, the investment could pay for itself in discounts — especially if an investor had something like a wedding in the offing.
Will the stock ever justify its current valuation without the discounted wine? It’s entirely possible, but it’s hard to tell. Chapel Down’s on an impressive growth trajectory, brand awareness and market penetration is growing, and it’s planning to expand its operations to capture more of the tourist market.
It’s also worth noting that the price-to-earnings ratio doesn’t tell the full picture. It has high-quality net assets of £34.3m, including freehold land, buildings, and £22.6m of wine stock. It’s still expensive, but highly attractive for wine drinkers like me.
