Boston Beer has followed the market’s trajectory closely, rising in tandem with the S&P 500 over the past six months. The stock has climbed by 8.3% to $244.51 per share while the index has gained 5.1%.
Is there a buying opportunity in Boston Beer, or does it present a risk to your portfolio? Check out our in-depth research report to see what our analysts have to say, 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
Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can have short-term success, but a top-tier one grows for years. Over the last three years, Boston Beer’s demand was weak and its revenue declined by 2% per year. This was below our standards and is a sign of lacking business quality.
2. Fewer Distribution Channels Limit its Ceiling
With $1.96 billion in revenue over the past 12 months, Boston Beer is a small consumer staples company, which sometimes brings disadvantages compared to larger competitors benefiting from economies of scale and negotiating leverage with retailers.
3. 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 indicates its newer products will spur better top-line performance, it is still below the sector average.
Final Judgment
Boston Beer isn’t a terrible business, but it doesn’t pass our bar. That said, the stock currently trades at 24.5× forward P/E (or $244.51 per share). At this valuation, there’s a lot of good news priced in - we think there are better stocks to buy right now. We’d suggest looking at a dominant Aerospace business that has perfected its M&A strategy.
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