Theres no doubt that Fevertree Drinks (LSE: FEVR) has been a blistering success for investors during 2015. The firm entered January with a share price around 175p, which compares to todays 580p a 231% uplift.
The big questions are, will the company outperform again in 2016? Or have the shares run ahead of themselves?
A lurch into profits
Fevertree is no jam tomorrow speculative share. Theres an understandable reason for the toe-curling valuation we see today. The founders vision was to create a premium brand of carbonated mixers for alcoholic spirits to capitalise on what they saw as an established trend towards consumption of premium products. In this case, Fevertree aimed to benefit from the rise of premium spirits.
It worked. Since its launchin 2005 the company has grown and2015 was the year that the success of its execution really showed up in pre-tax profits. City analysts forecast those profits will be up around 287% by the time we all set light to our Christmas puds at the end of the year.
Now, it would have been much more helpful if I had written this article in January rather than December, before this share popped its cork. However, I dont want to let one omission lead me to another bad decision. After all, it would be easy to dismiss Fevertree on grounds of its valuation the forward price-to-earnings (P/E) ratio sits at about 45 for 2016. Thats high. But I think the firm is worth keeping an eye on because the business model is compelling and growth could have much further to go.
Fevertrees high quality mixers often cost more than the spirits they mix, but customers ask for them by name by some accounts. The firm has carved itself a seemingly unassailable niche in the market and now refers to itself as the worlds leading supplier of premium carbonated mixers for alcoholic spirits by retail sales value. Thats quite an achievement for a businessthat started up just 10years ago. Today, Fevertree distributes to over 50 countries worldwide. Itsexecuting well and deserves further research and a place on my watch list.
Commodity prices: weak or just normalising?
Fevertree isa racy, highly rated share. So how about a big-cap stalwart like Royal Dutch Shell (LSE: RDSB)? 2015 hasnt been quite as kind to Shell. Itstarted the year with a share price of 2225p, which compares to todays 1508p a 32% drop. Ouch! Maybe the venerable old firm isnt the staid stalwart that Im looking for to shore up the downside in my portfolio after all.
Most of Shells challenges boil down to weak commodity prices. But are they trulyweak, or is the price of oil and other resources returning to a more stable normal range? I think that might be the case. Thats why Im inclined to hold fire for a while longer before investing in any resource shares such as Shell and its oil-producing peers. Recent events for oil companies, banks and supermarkets underline the risk inherent in all shares even those of big companies. Thats why I dont think its such a bad idea to consider proven winners with strong underlying businesses such as Fevertree, even when the valuation froths so much that the bubbles get up your nose!
I’m not brave enough to buy Fevertree or Royal Dutch Shell as things stand at the moment, but I do like the look of a mid-cap firm enjoying strong growth that looks set to continue.
One of the Motley Fool’s top analysts has put together a free report on this firm, which he believes could be poised for international success. If he’s right, the unfolding situation could be lucrative for investors taking the plunge with itsshares now. The report is called A Top Growth Share From The Motley Fool. This document is new, so it could be opportune to run a slide rule over the story behind this company right now. It’s yours, free, just click here.
Kevin Godbold has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.