Fevertree Drinks (LON:FEVR) is a special brand. It’s not every day you see a single drink power the vast majority of growth in one category for the best part of a decade, but that is exactly what Fever-Tree has done for premium tonics. The group is now the world’s leading supplier of premium carbonated mixers, with distribution networks in 72 countries around the world.

The group was launched in 2005 after its founders, Charles Rolls (formerly of Plymouth Gin) and Tim Warrillow, spied a gap in the mixers market. Rolls and Warrillow correctly surmised that if quality-conscious consumers are willing to splash out on premium gin, they are also likely to pay a little more for a decent tonic.

From this simple insight came phenomenal growth. Today, with its £1bn+ market cap, Fever-Tree is almost a victim of its own success. It is now so dominant in the UK market that some wonder where growth will now come from and question how it can defend high market share and operating margins from copycat competitors.

Fever-Tree’s asset-light business model makes for big profits, strong margins, high returns on capital, and lots of free cash flow. No surprise that the group has a Quality Rank of 96. It also leads to a premium valuation. At peak popularity a couple of years ago, shares traded on as much as 65-70 times forecast earnings.

Below par growth figures revealed at the group’s HY19 results precipitated a dramatic decline in the group’s share price. Now, Fever-Tree has a Momentum Rank of just 7 and its share price has fallen by some 72% in less than 18 months.

Yet still FEVR’s shares trade on a growth multiple of 22.3 times FY18 earnings.

I like a gin & tonic as much as the next man, but there are certain prices I won’t pay. In fairness to FEVR, such a lofty valuation appeared justified at the time due to its growth trajectory, quality characteristics, and habit of smashing broker forecasts. For most of its listed life, the group’s shares have been too pricey for me, but it has been a great success for others willing to pay up.

Now we find ourselves in a totally different market, with rapidly changing share prices. The mighty are falling. Has Fever-Tree just become affordable? The group has packed a lot into five…

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