Online grocery platform Ocado Group (LSE: OCDO) and premium spirits mixer specialist Fevertree Drinks (LSE: FEVR) are two of the best UK shares of the last decade from a growth viewpoint. Early-stage investors have made fortunes from these fast-growth companies.
Measured over five years, Ocado is up 599%. Over the same period, Fevertree is up 299%. They’re among the best-performing UK shares of the pandemic,too. Over 12 months they have grown 53% and 168% respectively.
But as companies get bigger, the pace of growth must eventually slow. FTSE 100-listed Ocado now has a market cap of almost £15bn, while Fevertree is worth more than £2.5bn. It’s not so easy to grow 600% or 300% from that starting point, but expectations remain high.
The Ocado share price slips
Investors have been pricing in plenty of future growth, which makes them liable to be disappointed by the mildest setbacks. That’s what has happened today, as both UK shares have fallen, despite posting halfway decent results.
The Ocado share price is down 4.27%, while Fevertree is down a hefty 14.93%. That’s bad news for them but good news for me, as I now have an opportunity to buy these two UK growth shares at a reduced price.
Ocado Retail has benefited from Covid lockdowns, as more people have opted for home deliveries. Today’s trading statement reported a 40% rise in sales for the 13 weeks to 28 February. Christmas revenues totalled £599m against £428.8m last year. Chief executive Melanie Smith predicted “strong growth over the coming years as we continue to lead the charge in changing the UK grocery landscape, for good”.
So why are investors so negative about this top UK share? One reason is that future comparatives will not be as attractive, as trading normalises. The other is that the Ocado share price is massively expensive given that it has made a loss for the last four years. It is betting the farm on growth, in the hope of establishing itself as a global tech company for supermarket deliveries.
That story still holds good and I would consider buying Ocado for long-term growth, while expecting more bumps along the road. It’s down 20% in the last month, partly due to the wider risk-off tech stock sell-off. That’s good enough for me. I’d buy.
I’d choose just one of these UK shares
Fevertree is also expensive, trading at 50 times earnings, and needs to keep investors sweet by showing continued growth potential. The mood is sour today, as preliminary profits dropped 29% to £51.6m due to falling sales in bars and restaurants, which in non-Covid times make up almost half of its revenues.
Off-trade and retail sales were better than expected as more people have been drinking at home. Management also increased the dividend. This isn’t the juiciest income stock, with a forward yield of 0.8%, but cover of 2.5 gives scope for growth.
Fevertree should benefit once people are liberated to celebrate their freedom with a craft G&T and premium mixer. The big question is whether Fevertree can really crack the US, where revenues grew 23% to £58.5m. They already total more than half UK revenues of £103.3m, so the outlook is promising. This UK shares is just a bit too expensive for me, though. I’d buy Ocado first.