Boston Beer Stock: Buy, Hold, Or Sell?

Boston Beer Company (NYSE: SAM) is a notable exception to the current market climate, trading near 52-week lows. The alcoholic beverage specialist has seen a 7% slump in the past year, compared to a 31% gain in the S&P 500. This is partly due to a drop in demand for its products, as well as the company's flagship Samuel Adams line of beers losing market share to the ever-growing number of craft beer brands. However, Boston Beer has a strong financial outlook, with a good balance sheet and no debt, and its share price is expected to rise by 18.46% in the next 3 months. So, should you buy Boston Beer stock?

Boston Beer's stock price

Boston Beer (SAM) is a notable exception to the few successful companies trading near 52-week lows. The alcoholic beverage specialist is down 7% in the past year compared to a 31% gain in the S&P 500. The slump is partly due to a drop in demand for its products in 2023, a trend seen across the consumer beverage industry. However, the company's latest quarterly earnings update showed some positive signs. Sales were down 12% in the most recent quarter, but core consumer demand declined by only 1%, and shipments to retail partners were down 4%. These figures represent improvements over the previous quarter and outperform key rivals such as Anheuser-Busch InBev.

Boston Beer's financial position is strengthening, with gross profit margin rising to 38% of sales from 37% in the previous quarter. This improvement is due to cost cuts and price increases, helping to offset falling demand for its Truly Hard Seltzer brand. The company's innovation platform is also showing success, with rising depletions in brands like Twisted Tea and Dogfish.

Looking forward, the biggest questions surround the timing and scale of Boston Beer's next growth cycle. Most Wall Street analysts predict modest sales growth of 2% in 2024 and less than 4% in 2025. These projections reflect pessimistic assumptions about the company and the beer industry, and actual performance could exceed expectations, particularly with new beverage launches in hit brands like Twisted Tea.

On the other hand, the stock could underperform again this year if the company fails to return to steady growth in depletions. Price increases may not provide the same boost to sales as in 2023 due to slowing inflation. As a result, Boston Beer stock currently trades at a discount, with a price-to-sales ratio of 1.8, down from 2.3 within the past year.

In conclusion, patient investors are likely to see good returns from holding Boston Beer stock over the next several years. However, they should brace for potential volatility and weak returns in 2024 as the company lays the groundwork for its next growth phase.

The company's financial health

The Boston Beer Company's financial health appears to be strong, with the company reporting improvements in its operating results and financial strength. In their latest quarterly earnings update, the company reported a 12% decrease in sales, which is discouraging. However, it's important to note that this decline is less severe than it seems, as the company's depletions (a measure of core consumer demand) decreased by only 1%, and shipments to retail partners were down by only 4%still ahead of its key rivals in the industry.

The Boston Beer Company's gross profit margin has improved, rising to 38% of sales from 37% in the previous quarter. This improvement is due to cost-cutting measures and price increases, which have helped to offset the decline in demand for their Truly Hard Seltzer brand. The company's innovation platform is also working well, with depletions rising for brands like Twisted Tea and Dogfish.

The Boston Beer Company's stock trades at a discount, reflecting the uncertainty surrounding the timing and scale of its next growth cycle. The company's price-to-sales ratio has decreased from 2.3 within the past year to 1.8 currently. This indicates that investors can own shares at a lower price relative to sales.

Looking at the company's balance sheet, The Boston Beer Company has a current ratio of 1.5 to 3, which is considered healthy and indicates that the company has sufficient current assets to cover its short-term liabilities. The company's debt-to-equity ratio is also relatively low, indicating that it has less debt compared to its shareholder equity.

In terms of cash flow, The Boston Beer Company has a positive cash flow per share, indicating that the company is generating more cash than it is spending. This is a measure of financial health and is preferred by analysts as cash flow is harder to manipulate than earnings. The company's net margin is also positive, meaning that for every $1 of sales, the company earns a profit.

Overall, The Boston Beer Company's financial health appears strong, with improving profit margins, a healthy balance sheet, and positive cash flow. While there is some uncertainty surrounding the timing of their next growth cycle, the company's stock trades at a discount, making it an attractive investment opportunity for patient investors.

The alcoholic drinks market

Consumer preferences play a significant role in shaping the market. Customers are increasingly demanding unique and premium alcoholic beverages and are willing to pay more for high-quality products that offer distinct tastes and experiences. This trend has led to a rise in the demand for craft beers, artisanal spirits, and small-batch wines. Additionally, health-conscious consumers are opting for low-alcohol or alcohol-free alternatives, such as non-alcoholic beers and mocktails.

The market is segmented into different types of alcoholic beverages, including beer, wine, spirits, and other product types. Beer holds the largest share in the market, followed by distilled spirits, wine, and other alcoholic beverages. The beer market is further divided into alcoholic and non-alcoholic beer categories.

The distribution channels for alcoholic drinks include on-trade and off-trade channels. Off-trade channels, such as supermarkets, hypermarkets, and online retailers, are gaining popularity due to the convenience and variety they offer to customers. On-trade channels, including bars, pubs, and restaurants, also play a significant role in the industry.

North America and Asia-Pacific are the dominant regions in the alcoholic drinks market, with Asia-Pacific having the largest market share. The increasing young-adult population, rising disposable income, and strong economic growth in these regions are driving the demand for alcoholic beverages.

In terms of Boston Beer stock, it is currently trading at a discount, and patient investors may see good returns over the next several years. However, there is uncertainty surrounding the timing and scale of the company's next growth cycle, and the stock could underperform again in 2024 if it fails to return to steady growth in depletions. Brace for volatility, but the long-term outlook is positive.

Boston Beer's product portfolio

The Boston Beer Company has a diverse product portfolio, including craft-brewed beers and cider products. The company's product portfolio includes:

• Beer: The company's first brand of beer was Samuel Adams, named after Founding Father Samuel Adams, an American revolutionary patriot. The initial offering was Samuel Adams Boston Lager, an amber or Vienna lager with 4.8% ABV. Over the years, Boston Beer has expanded its beer offerings to include other Samuel Adams variants such as Rebel IPA, Rebel Rouser, Rebel Rider, and Light. They have also introduced seasonal beers, such as Cold Snap, Escape Route, Summer Ale, Porch Rocker, Octoberfest, Pumpkin Batch, Winter Lager, and White Christmas.
• Flavored Malt Beverages: Boston Beer launched Twisted Tea in 2000, a 5% ABV malt beverage marketed as a "hard iced tea". The brand portfolio has since expanded to include a range of flavoured varieties, including a "half and half" variant designed to mimic an Arnold Palmer.
• Hard Seltzer: In 2016, Boston Beer launched Truly Hard Seltzer, which became one of its core brands. However, demand for the brand has slumped following a huge spike during the pandemic.
• Hard Cider: Boston Beer launched Hardcore Cider in 1997 and has since expanded its cider offerings. In 2012, they launched the Angry Orchard hard cider company, and cider is now available as both year-round and seasonal offerings.

In addition to these core products, Boston Beer also operates several sub-brands, including The Traveler Brewing Company (focused on shandy variants), Coney Island Brewing Company (brewing a line of hard sodas), Angel City Brewery, and Concrete Beach Brewery. The company also has a partnership with German brewery Bayerische Staatsbrauerei Weihenstephan, with whom they jointly produced the Infinium craft beer in 2009-2010.

The company's growth prospects

The Boston Beer Company's growth prospects are heavily reliant on its ability to innovate and adapt to changing consumer demands. With a diverse portfolio, strong brand equity and a top-ranked sales force, the company is well-positioned for long-term success. Here are some key factors contributing to its growth prospects:

• Diversified Portfolio: Boston Beer Company has a broad portfolio that includes well-known brands such as Angry Orchard Hard Cider, Dogfish Head, Truly Hard Seltzer, Twisted Tea Hard Iced Tea, and Samuel Adams. This diversification allows them to reach a wider range of consumers and reduces their dependence on a single brand or category.
• Innovation and Brand Building: The company has a strong track record of innovation, having pioneered not just craft beer but also hard cider, hard seltzer, and hard tea. They continue to invest in innovation and brand building, adapting their products to meet evolving consumer preferences. For example, they are repositioning Truly as a light refreshment brand and expanding their offerings in the spirits-based RTD space.
• Operational Efficiencies: Boston Beer Company is focused on improving operational efficiencies to drive margin improvement. They have implemented strategies to generate procurement savings, improve brewery efficiency, reduce waste, and optimize their network. These initiatives contributed to a 120-basis-point improvement in gross margins in 2023.
• Strong Financial Position: The company has a robust financial position with a cash-generative business model. In 2023, they delivered over $200 million in free cash flow and ended the year with a cash balance of almost $300 million and no debt. This strong balance sheet enables them to invest in their brands, innovate, and return cash to shareholders through share repurchases.
• Optimistic Outlook: Despite challenges in the hard seltzer category, Boston Beer Company remains optimistic about their growth prospects. They expect to see improvements in depletions and margins in 2024, driven by their innovative product launches, operational efficiencies, and strategic positioning. They project gross margins to be between 43% and 45% for 2024 and anticipate earnings per diluted share of $7 to $11.
• Competitive Advantage in RTD Space: The company sees significant potential in the RTD (ready-to-drink) space and believes they can effectively compete against traditional spirits companies. They plan to leverage their expertise in the beyond-beer space and their strong sales force to capture opportunities in this growing market.
• Focus on Core Brands: While innovation is crucial, Boston Beer Company also recognizes the importance of investing in and supporting their core brands. They plan to increase brand support for Twisted Tea, their fastest-growing brand, and Truly, which they are repositioning. This dual focus on innovation and core brand development is expected to drive growth in the evolving beverage landscape.

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