Treasury Wine Estates Ltd (ASX: TWE) soared to its highest point all year this week, touching $5.89 per share at its highest point.
This is within inches of its highest point in the past five years, $6.43, attained just after the half-year report was released in May 2013.
Since then Treasury has increased its revenues by roughly 10%, from $850m to $934m, although profit attributable to shareholders has dropped from $52m to $42m.
Earnings before interest, tax, and material items increased from $73m to $85m however, and Treasury's profit has been impacted this year by the cost of reorganising its businesses.
The most recent rise in Treasury shares was triggered by the announcement at the end of March informing shareholders that the company's supply chain optimisation process had commenced.
Treasury is consolidating its facilities in order to improve utilisation and cut costs; the process is expected to be complete by the end of 2016 and is expected to deliver $50 million in savings from the total Cost Of Goods Sold.
This means that the benefits aren't immediate, but rather are accrued when wines are sold.
Investors are clearly buying into the optimism, but I'm not so sure that Treasury shares are worth nearly $6 apiece.
While the savings are important, and quite sizeable, it remains to be seen if Treasury will be able to rejuvenate its wine sales and deliver growing revenues, earnings and dividends to shareholders.
With the company having grown revenue by just 10% between half-year 2012 and half-year 2014, I am not sure Treasury's growth prospects justify a price tag of 21 times earnings.
Treasury's situation reminds me of Coca-Cola Amatil Ltd (ASX: CCL), which is in a similar situation and trades for a comparable Price to Earnings (P/E) multiple, but has several advantages including unique, easily identifiable products, a more constant stream of earnings, and less risk exposure to adverse weather.
Given a choice between the two, I'd pick Coca-Cola every time.
Fortunately the ASX is full of opportunities, and one company in particular offers faster growth than Treasury and Coca-Cola Amatil combined.
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