The corks haven’t stopped popping at the London headquarters of soft drinks company Fever-Tree [FEVR]. Its share price almost doubled over the past 12 months, with its value breaking past £4bn as momentum continues following years of consistent double-digit growth in revenue and earnings. Shares have gained over 2000% since its IPO back in 2014.
Having overtaken Schweppes as the mixer of choice in pubs, bars and supermarkets, much of Fever-Tree’s success has been down to the surge of consumer interest in premium gins, with its range of high-end tonics at the centre of its portfolio.
The reward has already been massive, and the company now still sees huge potential in making mixers for dark spirits. Although tonic currently accounts for 75% of the company’s overall sales, gin – which the tonics are designed to accompany – accounts for only 6% of the global premium spirits market.
This has already seen Fever-Tree unleash a wave of new flavours designed to pair with dark rum and whiskey, and the company is also seeing success with its new 150ml pressurised can.
Amount Fever-Tree stock has gained since IPO in 2014.
But there is a fair argument that Fever-Tree, which is currently trading at 85 times more than its annual earnings, is overvalued, and there is plenty of risk that could bring Fever-Tree’s long-lasting party to an end.
Barry Norris, manager of the Argonaut Absolute Return fund, told Citywire in April that he was shorting the stock predicting it could fall by “at least” 50%. He believes much of its future growth
has already been priced in, and so expects sales growth to significantly slow.
Furthermore, Fever-Tree’s stellar growth is only possible due to its lean business model. It outsources everything, including manufacturing and distribution, and sources ingredients from around the world. By depending on partners and having little control over operations, there’s big risk in the supply chain that has the potential to trigger a hangover.
But the bulls are still behind Fever-Tree, with many eyeing even more growth potential overseas: under half of all Fever-Tree’s revenue currently comes from outside of the UK. And while the company only broke into the US last year, it has seen some early success as sales there rose 40% over the course of the year. In December, plans were announced to expand further and build a permanent base in the US.