A ‘glamour’ stock is one that has a high price and almost always has a high price/earnings (PE) ratio (or your preferred valuation metric) because of abnormally high investor demand. Glamour stocks also have a habit of creating their own share price momentum or ‘lift’, leading the share price, and valuation, to giddy heights. Most often, the share price, business prospects and earnings per share (EPS) growth become increasingly divergent over time. Investors can make high returns in such stocks, but at high risk and usually without any meaningful dividend yield.
A well known and widely held such stock has been premium drinks manufacturer Fevertree Drinks (FEVR), maker of high-end tonics and other mixers. Founded in 2004, the business enjoyed spectacular early success, achieving high rankings in the Sunday Times Fast Track 100. In March 2013, its value was £48m (via a 25 per cent stake purchase by Lloyds Development Capital) and 18 months later on its Aim IPO this had increased to £112m: by the end of the first day’s trading this had jumped to £138m. Thereafter, the share barely paused for breath in four years climbing 30-fold to a valuation peak value of £4.5bn. This made it the largest stock on Aim and larger than several in the FTSE100.