Over the last six months, Boston Beer’s shares have sunk to $254.50, producing a disappointing 7.5% loss - a stark contrast to the S&P 500’s 7.7% gain. This may have investors wondering how to approach the situation.
Is there a buying opportunity in Boston Beer, or does it present a risk to your portfolio? Get the full breakdown from our expert analysts, it’s free .
Despite the more favorable entry price, we're cautious about Boston Beer. Here are three reasons why SAM doesn't excite us and a stock we'd rather own.
Why Is Boston Beer Not Exciting?
Known for its flavorful beverages challenging the status quo, Boston Beer (NYSE:SAM) is a pioneer in craft brewing and a symbol of American innovation in the alcoholic beverage industry.
1. Revenue Spiraling Downwards
A company’s long-term sales performance can indicate its overall quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Boston Beer struggled to consistently generate demand over the last three years as its sales dropped at a 2.6% annual rate. This was below our standards and signals it’s a lower quality business.
2. Less Negotiating Power with Suppliers
Boston Beer is a small consumer staples company, which sometimes brings disadvantages compared to larger competitors benefiting from economies of scale and negotiating leverage.
3. Projected Revenue Growth Is Slim
Forecasted revenues by Wall Street analysts signal a company’s potential. Predictions may not always be accurate, but accelerating growth typically boosts valuation multiples and stock prices while slowing growth does the opposite.
Over the next 12 months, sell-side analysts expect Boston Beer’s revenue to rise by 3.1%. While this projection suggests its newer products will fuel better top-line performance, it is still below average for the sector.
Final Judgment
Boston Beer isn’t a terrible business, but it doesn’t pass our bar. After the recent drawdown, the stock trades at 22.6× forward price-to-earnings (or $254.50 per share). At this valuation, there’s a lot of good news priced in - we think there are better investment opportunities out there. Let us point you toward Wabtec, a leading provider of locomotive services benefiting from an upgrade cycle .
Stocks We Like More Than Boston Beer
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