Rising Competition Has Flattened Boston Beer - TheStreet

The Boston Beer Company (SAM) - Get Report once was synonymous with good taste and explosive growth prospects. Today, the stock is down 25.18% year to date, as the company grapples with aggressive smaller breweries grabbing market share, along with larger competitors and others.

Gross margins are under pressure, significant revenue growth looks unlikely and analysts are cautious about a turnaround. If you have shares, there's no point in selling at a loss today, but fresh purchases of this once high-flying stock aren't recommended. Shares rose slightly in Thursday trading.

To be sure, good hops output projections, a steady second quarter report card and talk about self-driving tech indirectly boosting beer makers, have been encouraging. The company is also wisely focusing on a rise in hard cider consumption via its Angry Orchard brand.

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But analysts at top research outfits, including Cowen and Company, Susquehanna, Citigroup, Goldman Sachs, and Nomura are down on Sam Adams, according to a list from Tipranks. That's understandable.

It was sometime in April this year that Boston Beer founder Jim Koch said that the burgeoning craft beer industry could flatten in the next several years as the market hits a saturation point. Koch said that the number of brewers will rise to around 10,000 within the next two to three years but that demand was unlikely to sustain that number. 

Separately, there are also concerns around legalized marijuana impacting the alcohol industry. In April and again in May, the stock plummeted to 52-week lows; recently it's recovered some ground.

Yet the long-term prognosis is not encouraging. Major players, including Anheuser-Busch and Craft Brew Alliance make things difficult for Boston Beer.

The company's sales were negative in the first two quarters of 2016, a contrast from 2014 when SAM was growing revenues in the 20-30% range annually.

In the past year, Boston Beer's market value has shrunk by one-third making it a less than $2 billion-company. Analysts predict a limited rebound in 2017, with just a 3.2% rise in topline growth. This would return it to near 2015 sales.

That said, valuations at about 9.8 times EV/EBITDA aren't that severe. Ambev (around 14 times), Anheuser-Busch, Craft Brew Alliance and Molson Coors Brewing are trading at a premium.

Bottom line: If you own the stock, hang on for a while in case the company turns around. But don't buy shares now; it's too risky.


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This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.