Fevertree Drinks plc and Just Eat plc can still make you rich

Fevertree bottles
Fevertree bottles

Premium mixer drinks supplier Fevertree Drinks(LSE: FEVR) has been one of those stocks capable of transforming the lives of investors brave enough to cling tightly to their shares for the ride.

At today's share price around 2,447p, the stock is up a cork-popping 1267% since January 2015 as the firm rapidly penetrated the market for better-tasting mixers in the UK and across the world. But keeping the faith with a stock like this is not easy for value-schooled investors when the price-to-earnings (P/E) ratio never drops below high double digits.

Spectacular increases in earnings

Increases in earnings over the last four years have been spectacular - 50%, 303%, 106%, and 45% for the current year - and in July, with the interim results, the firm said growth in all regions is being driven by the gathering pace of 'premiumisation' and 'mixability'.

Stories like this can 'top out', of course, and once-fast-growing companies can go ex-growth, which often leads to a valuation write-down. Yet there's no sign of that happening with Fevertree. If anything, the firm looks like it's only just gaining the critical mass that could help it roll forward from here like an unstoppable juggernaut.

The recent half-year period saw 47% of sales come from the UK, 31% from continental Europe, 18% from the USA, and 4% from the rest of the world. I reckon the remaining potential for market-share gains abroad is mind-boggling. Meanwhile, the most up-to-date figures for revenue growth remain exciting. In the first half of the trading year, revenue in the UK grew 113% compared to a year ago, rose 63% in Europe, lifted 43% in the USA, and drove 45% higher in the rest of the world.

Overcoming mental hurdles

My feeling is that this company has much more to deliver its shareholders in the years to come, but how can we overcome the mental hurdle of the firm's 2018 forward P/E rating running just below 64? One way is to focus on the directors' ongoing narrative, and the most recent advice is that the firm is trading "materially ahead of its expectations."

We find another stock market high flyer in takeaway food delivery digital marketplace provider Just Eat(LSE: JE). Since the beginning of 2015, the shares are up around 119% at today's 695p. Not the performance of Fevertree, but Just Eat's valuation isn't as high either. The forward P/E rating runs at a mere 30-or-so for 2018, but the record of growth in earnings stands up well compared to Fevertree's - 200%, 58%, 85%, and 38% for the current year.

Image problem?

City analysts following the firm expect earnings to grow by a further 37% during 2018, which makes the valuation look fair if growth can continue. However, my guess is that the story has an image problem.

I find it harder to believe Just Eat's growth outcome than I do Fevertree's. Yet the firm's operations cover the UK, Australia, New Zealand and developing markets around the world, and all regions put in high double-digit revenue gains in the interim report compared to a year ago. The directors again uttered those magic words "ahead of management's expectations", and I reckon the stock could go on to reward investors yet further from here.

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Kevin Godbold has no position in any of the shares mentioned. The Motley Fool UK has recommended Just Eat. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.