Last time I looked at AIM-listedtonic makerFevertree Drinks (LSE: FVER) it was full offizz. Its share price had risen almost 200% in a year and management was fired upabout the future, issuing a bullishtrading updateanticipating a 77% rise in second half sales and 71% growth in revenues to 59.2m.
High spirits
As Shakespeare wrote in Julius Caesar, there is a tide in theaffairs of men, which taken at the flood, leads on to fortune, and in this case it is theflood of craft distillers that are reviving gins tiredreputationthat has created the fortune.
We live in a golden age of gin, which is a far happier one thanthe bleak Hogarthian image. Instead of mothers ruin, we now have hipsters reward, as drinkers learn to distinguish Gordons fromSipsmith, and Beefeater from Hendricks.
Fever tree foundersTim Warrilow and gin guru Charles Rollshave been surfing the tide, after realising that the gin renaissance had not been matched by an artisanal tonic water revival, with Schweppespretty much the only mixer available for all those exciting new gin formulations.
Gin up!
Rather than packing their mixers with the usual fizzy drink chemicals, Warrilow and Rolls shunned artificial sweeteners and sourcedpharmaceutical-grade quinine, giving their premium tonic water acleaner taste and aroma. Investors who got in early have enjoyed the sweet smell of success, with the share price up around500% in the last two years.
Everybody likes a five-bagger, especially one that goes nicely with ice and a slice. But the question is whether Fevertree Drinkscan continue to sparkle. It will certainly need to, given its sky-high valuation of 91 times earnings. Thats forecast to drop to 50 times at the end of this year, thanks to continued rapid earnings per share (EPS) growth, projected to be 87% this year. However, that is down from 303% last year, so the momentum is slowing. For 2017 the forecast is for EPS growth ofa much more sober9%.
Thats the spirit
This year, earnings are forecast torise 55%, from around 59m to93m. Next year, they are forecast to hit 109m, a rise of just 17%. There is a danger that this slowing pattern will continue, as the artisan gin revolution will run out of steam one day. Also, tonic water competition is a lot stiffer than it was, withFentimans, 1724, Bramely & Gages 6 OClock, and Pellegrino all battling for drinkers attention. Tonic giant Schweppes, which is owned by Coca-Cola, is fighting back withits own range of premium mixers.
Fevertree still hits the right spot, with the share price almost doubling from 583p to 1,055p since I raised my glass to the stock on 19 February 2016 (when its valuation was stood at a whopping 203 times earnings). Management expects full-year results to beat market expectationsafter a spiritedperformancein the second half of this year. It still looks a tempting buy, although its five-bagging days are surely over.
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Harvey Jones 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.