Fevertree Drinks (LON:FEVR) is classified as a 'High Flyer' stock: a heady mix of high quality, high momentum, and low value.
Some of the market's biggest multibaggers were a High Flyer at one point or another, but beware - this is a dangerous (if potentially lucrative) part of the market to play in.
Fevertree Drinks is a large cap stock in the Distillers & Wineries industry. When we analyse Fevertree Drinks from a factor perspective, we find that it has a:
- Quality Rank of 97,
- Momentum Rank of 89,
- Value Rank of only 3.
This is the classic factor profile of a High Flyer.
A combination of high quality, high momentum and low value is great when earnings go up but a bad place to be when things go wrong. The higher they rise the harder they fall, after all.
Fevertree Drinks (LON:FEVR): flying high but is it safe?
So, High Flyers tend to be riskier and more volatile than the market average. But is this true of Fevertree Drinks?
We can find out quickly by applying Stockopedia’s RiskRatings system, which divides stocks into five groups according to stock price volatility. The five classifications (from most to least volatile) are:
- Highly Speculative (30% of the market),
- Speculative (25% of the market),
- Adventurous (20% of the market),
- Balanced (15% of the market), and
- Conservative (10% of the market)
Fevertree Drinks is a speculative stock. This means that the group is in the more volatile half of the market in terms of stock price volatility, as might be expected of a High Flyer. Those looking to invest here should prepare themselves for a potentially bumpy ride.
One thing in Fevertree Drinks’s favour is its above average five-year return on capital employed figure of 30.9%. Being consistently profitable to such a degree over multiple years suggests that Fevertree Drinks can back up its favourable factor exposures with some kind of economic moat and, hopefully, make any share price volatility more bearable in the short term.
This attractive blend of factors and profitability characteristics has been noticed by the market - Fevertree Drinks has a one-year relative strength of 13.5%.
Find the rockstars of the stock market
High Flyers are great stocks to have in your portfolio if you think you need more momentum or quality - just don't back the truck up, because what goes up must come down.
Disclaimer: These articles are provided for information purposes only. The content is not intended to be a personal recommendation. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser. The author has no position in the stocks mentioned, unless otherwise stated.