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Fevertree Drinks Plc (AIM:FEVR), a beverage company based in United Kingdom, saw a double-digit share price rise of over 10% in the past couple of months on the AIM. As a mid-cap stock with high coverage by analysts, you could assume any recent changes in the company’s outlook is already priced into the stock. But what if there is still an opportunity to buy? Let’s take a look at Fevertree Drinks’s outlook and value based on the most recent financial data to see if the opportunity still exists. Check out our latest analysis for Fevertree Drinks
Is Fevertree Drinks still cheap?
Fevertree Drinks is currently overpriced based on my relative valuation model. I’ve used the price-to-equity ratio in this instance because there’s not enough visibility to forecast its cash flows. The stock’s ratio of 68.52x is currently well-above the industry average of 23.86x, meaning that it is trading at a more expensive price relative to its peers. Another thing to keep in mind is that Fevertree Drinks’s share price is quite stable relative to the rest of the market, as indicated by its low beta. This means that if you believe the current share price should move towards its intrinsic value over time, a low beta could suggest it is not likely to reach that level anytime soon, and once it’s there, it may be hard to fall back down into an attractive buying range again.
What kind of growth will Fevertree Drinks generate?
Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. Although value investors would argue that it’s the intrinsic value relative to the price that matter the most, a more compelling investment thesis would be high growth potential at a cheap price. With profit expected to grow by 47.40% over the next couple of years, the future seems bright for Fevertree Drinks. It looks like higher cash flows is on the cards for the stock, which should feed into a higher share valuation.
What this means for you:
Are you a shareholder? It seems like the market has well and truly priced in FEVR’s positive outlook, with shares trading above its fair value. At this current price, shareholders may be asking a different question – should I sell? If you believe FEVR should trade below its current price, selling high and buying it back up again when its price falls towards its real value can be profitable. But before you make this decision, take a look at whether its fundamentals have changed.
Are you a potential investor? If you’ve been keeping an eye on FEVR for a while, now may not be the best time to enter into the stock. The price has surpassed its industry peers, which means it is likely that there is no more upside from mispricing. However, the positive outlook is encouraging for FEVR, which means it’s worth diving deeper into other factors in order to take advantage of the next price drop.