While newsflow at Stock Spirits Group (LSE: STCK) has been more reassuring of late, I remain less than tempted to plough into the drinks giant despite the release of more solid numbers on Tuesday.
Stock, which produces spirits and liquors sold across Central and Eastern Europe, said overall trading since half-year results were announced in August, and therefore for the full-year ended 31 December, was slightly ahead of expectations.
The small-cap said that in Poland and the Czech Republic -- which provide more than three-quarters of group sales -- both volumes and values continue to rise, the company quoting researcher Nielsen's data of November.
The solid market conditions the firm speaks of are being celebrated by the market right now, and this has fuelled its 70% share performance improvement since the beginning of August.
And in theory the prospect of strong economic growth in the emerging economies of far-flung Europe should keep driving drinks demand, and with it Stock Spirits' earnings, higher in the years to come.
But I remain less than convinced by this argument as key markets like vodka remain in a state of structural decline as modern drinkers opt for alternative tipples. And Stock's position in its key territories also remains under pressure from intense competition.
So while the business has engaged in massive cost-cutting programmes and diversification into new product areas to combat these problems, the risk to it posting strong and sustained profits growth remains high.
City analysts are predicting that the business will follow an anticipated 19% earnings improvement in 2017 with an 8% rise in the current year. However, current forecasts leave the company dealing on a forward P/E ratio of 18.2 times. And this is too high in my opinion given the amount of hard work it still faces to keep sales on an upward trajectory.
Take a sip
I would instead be far happier pouring my investment cash into Majestic Wine (LSE: WINE), even if the broader retail environment in the UK is likely to remain challenging for some time yet.
The wine-seller also updated the market on Tuesday, advising in a cheery festive report that underlying sales leapt 4.1% in the 10 weeks to January 1. AIM-quoted Majestic generates almost a third of its annual sales at Christmas so today's update clearly bodes well for full-year numbers.
Investors should beware that its hard work to get drinkers flocking back through its doors is not expected to light a fire under earnings just yet. Instead, a 1% bottom-line reversal for the 12 months to March 2018 is currently anticipated by City brokers, a situation which would represent a fourth successive annual dip if realised.
But I am confident the measures it has undertaken to improve its retail operations should create healthy profits growth further down the line. And I am not alone, the Square Mile anticipating it to finally fire back with a 19% earnings improvement in fiscal 2019.
Despite its elevated forward P/E ratio of 26 times, I believe the huge sums it has invested to bolster its international footprint, not to mention improve the customer experience in its UK market, should lay the groundwork for healthy growth in sales ahead, and thus Majestic Wine is deserving of such a fruity premium.
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Royston Wild has no position in any of the 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.