While investors should never dwell on their regrets, one that must top many lists is failing to buy shares in tonic water specialist Fevertree Drinks (LSE: FEVR) towards the end of 2014. If youd had the skill (or good fortune) to do this, the value of your holding would have increasedtenfold over the last two-and-a-half years.
Can the shares continue to rise? Sure, assuming the company can provide evidence that it has managed to build on last years excellent performance when it delivers half-year figures on 24 July.
The only problem with this is the fact that 2016 was such a superb year for Fevertree. Aprils full-year report highlighted a 73% increase in revenue (to 102m) and 97% rise in adjusted EBITDA (to almost 36m). Beating these figures in 2017 is no easy task and any sign that momentum is slowing could see many holders jettison the stock from their portfolios.
To further muddy the investment case, Fevertrees popularity as a growth stock par excellence following its tendency to beat earnings estimates has left it trading on a gravity-defying 61 times forward earnings.
And given that anything over, say, twois indicative of a stock trading at a fairly high price relative to the predicted growth of the underlying company, Fevertrees price-to earnings growth (PEG) ratio of over 5.2 also implies that the stock looks horribly expensive.
A more appealing option
If, like me, youre put off by the possibility of Fevertrees crown slipping, an alternative stock with decent growth credentials might be drinks wholesaler, distributor, and retailer, Conviviality (LSE: CVR). Todays full-year results were certainly encouraging.
Thanks to a series of acquisitions (which all appear to have been integrated ahead of schedule), the 550m cap business grew revenue by 85% to 1.56bn in the year to the end of April, with adjusted pre-tax profits rocketing 111% to just under 46m.
Broken down, the company reflected that all areas of the business had performed strongly.
A 6.4% increase in revenue (to just over 1bn) was seen at Conviviality Direct (its wholesale unit) with a total of 235 customers being added over the course of the year.
Trading under its Wine Rack and Bargain Booze brands, revenue at its retail arm rose 6.1% to 378m. A total of 39 new franchisees joined the company last year, bringing the total number to 352 (and over 700 stores).
In Conviviality Trading which serves festivals and outdoor events sales hit 146m a rise of 1%.
Given this more-than-adequate performance, you might expect theshares to be trading at a fairly high valuation. This simply isnt the case. Right now, you can pick up its shares at just 13 times forecast earnings.
Remember Fevertrees sky high PEG? Convivialitys is 1.8 for 2017. That means investors will be getting access to earnings growth an awful lot more cheaplyat the latter.
In addition to its reasonable valuation and growth potential, its also worth highlighting that the Crewe-based companys shares come with a forecast 4.3% yield for the new financial year, nicely covered by profits. Given that levels of free cashflow at Conviviality climbed 349% to 51m by the end of the last financial year (which permitted the company to raise the full-year dividend by no less than 33%), I wouldnt be surprised if the stock also becomes a core holding for many income investors in the years ahead.
Like growth shares? You’ll love this
Of course, Conviviality isn’t the only company with solid growth credentials. Indeed, the Motley Fool’s Head of UK Investing, Mark Rogers, thinks he’s found an even better opportunity in the form of a top British brandwith big plans to grow its international footprint.
To find out why he thinks you simply can’t afford to ignore this rising star, just click here. Mark’s report is available completely FREE of charge and without obligation.