Boston Beer has been treading water for the past six months, recording a small loss of 3.7% while holding steady at $197.54. The stock also fell short of the S&P 500’s 7.1% gain during that period.
Is now the time to buy Boston Beer, or should you be careful about including it in your portfolio? See what our analysts have to say in our full research report, it’s free.
Why Is Boston Beer Not Exciting?
We're sitting this one out for now. Here are three reasons you should be careful with SAM and a stock we'd rather own.
1. Revenue Spiraling Downwards
Examining a company’s long-term performance can provide clues about its 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 2.1% annual rate. This was below our standards and is a sign of lacking business quality.
2. Projected Revenue Growth Shows Limited Upside
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 stall. While this projection implies its newer products will catalyze better top-line performance, it is still below the sector average.
3. Previous Growth Initiatives Haven’t Impressed
Growth gives us insight into a company’s long-term potential, but how capital-efficient was that growth? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).
Boston Beer historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 5.7%, somewhat low compared to the best consumer staples companies that consistently pump out 20%+.
Final Judgment
Boston Beer isn’t a terrible business, but it doesn’t pass our quality test. With its shares trailing the market in recent months, the stock trades at 20.7× forward P/E (or $197.54 per share). This valuation tells us it’s a bit of a market darling with a lot of good news priced in - we think there are better opportunities elsewhere. Let us point you toward an all-weather company that owns household favorite Taco Bell.
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