One hot growth stock I'd buy over Fevertree Drinks plc

Fevertree Drinks(LSE: FEVR) has been nothing short of a spectacular investment since its late-2014 IPO. Shares in the premium mixer drinks group have risen from the IPO price of 134p, to 2,350p today. That's an incredible gain of 1,650%. Is the stock worth buying now? Let's take a look.

Powerful growth

A glance at Fevertree's financials reveals an excellent set of numbers. Between 2014 and 2016, sales climbed from £35m to £102m, with net profit surging from £1.3m to £27.5m. That's some powerful growth. Looking at forecasts for FY2017 and FY2018, analysts expect the party to continue. Revenue and net profit of £168.5m and £45.3m are anticipated for the year just completed, followed by sales of £199.1m and a net profit of £49.2m this year. Fevertree's growth looks compelling.

Other metrics stand out as attractive too. For example, the group's operating margin is strong, at 35%, and return on equity is excellent at approximately 43%. Debt is low, with just £6.1m of borrowing on the balance sheet.

Fevertree has consistently revised trading expectations upwards, and is bullish on the outlook for the future. What's not to like?

Priced for perfection

Well, the issue that concerns me is the stock's valuation. With analysts expecting earnings of 42.6p for FY2018, the forward-looking P/E ratio is a high 55. That valuation prices the stock for perfection, and doesn't leave much room for error.

The PE to growth (PEG) ratio reinforces my view that the stock is expensive. With analysts expecting earnings growth of around 8.7% this year, the PEG ratio is currently a high 6.9. Generally, a ratio of under one is considered strong value.

I also have a few concerns about the company's competitive advantage. Is the brand truly strong enough to withstand competition from new entrants to the market? What about competition from established players? I've noticed that rival Schweppes has had a branding overhaul recently - it's clearly trying to fight back.

Given these concerns, Fevertree is not a 'buy' for me at the current price. I'll keep the stock on my watchlist for now.

Cheaper growth

One growth stock that does look attractively valued, in my view, is Mattioli Woods(LSE: MTW). The company is a leading provider of wealth management and pension solutions.

This is another small-cap stock that is growing at an impressive pace. For example, over the last three years, revenue has surged 72%, while net profit has climbed 50%. Half-year results released today, demonstrate further momentum.

Indeed, for the six-month period to the end of November, revenue jumped 17% to £28.4m, while adjusted EPS rose 15% to 19.2p. In a signal of confidence from management, the interim dividend was hiked 17% to 5.5p per share. Chief Executive Ian Mattioli was upbeat about the firm's future, stating: "The outlook for this year remains in line with our expectations and I believe we are very well positioned to meet the ambitious longer-term goals we have set."

Trading on a forward P/E of 20.6, with a prospective dividend yield of 2%, I believe shares in Mattioli Woods could be worth a closer look.

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Edward Sheldon has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.