Can Fever-Tree's feverish growth go on?

Sales are booming for Fever-Tree, the premium drinks firm. But can it maintain its spectacular rate of growth?

A bullish update from Fever-Tree (LSE: FEVR), the maker of posh drinks mixers, went down well with pun-loving financial journalists, who described the firm's progress as "sparkling" and "fizzing". Investors were pleased too, with the share price "bubbling up to new highs", says Holly Black in the Daily Mail. The stock gained 10% on Monday and has now risen by more than 500% since it listed two years ago.

The latest update builds on strong interim results published in July, which showed sales growth of 69% in the first half of 2016, amid "particularly notable performance" in retail sales. Fever-Tree's upmarket tonics and lemonades were originally sold in restaurants, cocktail bars and gastro-pubs, but sales have been bolstered by bringing its products into the mass market, with a "march into low-price supermarkets", says Joanna Bourke in the Evening Standard. With Fever-Tree's products now on the shelves in Asda, it is now present in "every major supermarket" in the UK.

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Still, the stock now trades on a forecast price-to-earnings (p/e) ratio of 52, says Andrea Felsted on Bloomberg.com. "To keep up that effervescence, Fever-Tree needs to carry on delivering the earnings upgrades. But there are a few risks to that frankly feverish rate of expansion." One is the fickleness of fashion. Fever-Tree has built its success on the back of the boom in artisanal gin so favoured by metropolitan hipsters. But "if millennials move away from premium spirits", says Felsted, "that would put its punchy pace in peril". A second risk is Brexit. The UK accounts for 45% of sales, making it vulnerable to any slowdown in the economy that might be prompted by leaving the EU. Third, while it has stolen a march on the competition, it may not have the premium market to itself forever. "Big consumer companies struggling to find new sources of growth might well turn their attention to premium mixers."

Quite, says Ashley Armstrong in The Daily Telegraph. There's been "a gulf between the upmarket tonic company and its soft drinks rivals, which have been struggling in the deflationary environment", but the firm now faces competition from the likes of Fentimans, 1724, and Bottle Green. Schweppes is also coming up with premium versions of its mixers. Still, while there's no guarantee Fever-Tree can hold on to its market leadership, many shareholders aren't betting on that, says Felsted. Instead, they can see that Fever-Tree is "just the sort of upstart, nimble and youth-approved company that has the entrenched behemoths salivating". At £1.2bn, the firm would be "a mere sip" for Diageo or Coca-Cola. The prospect of bids from the big boys should prevent its share price from "going too flat" anytime soon.