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Boston Beer Co Inc (SAM), Molson Coors Brewing Company (TAP): Despite Good Growth, This Large Craft Brewer Looks Expensive

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Shareholders of Boston Beer Co Inc (NYSE:SAM) must be quite happy, as the stock has risen significantly from a bottom of only $19 per share in 2009 to more than $200 per share recently. As Boston Beer Co Inc (NYSE:SAM) seems to be quite expensive now, being valued at nearly 35 times its forward earnings, is it too late for new investors to get in? Could Boston Beer Co Inc (NYSE:SAM) have more room to rise in the long run? Let’s find out.

Boston Beer Co Inc (NYSE:SAM)

 

A growing craft brewer with a strong balance sheet

Boston Beer Co Inc (NYSE:SAM) is considered the biggest craft brewer in the U.S., selling Samuel Adams beer, Twisted Tea flavored malt beverages and Angry Orchard hard-cider beverages. What I like about Boston Beer Co Inc (NYSE:SAM) is its impressive and growing operating performance over the past 10 years. Revenue increased from $208 million in 2003 to $580 million in 2012, while net income rose from $11 million to $59 million during the same period. Moreover, Boston Beer Co Inc (NYSE:SAM) has generated double-digit returns on invested capital in nine out of the past 10 years. In 2012, its return on invested capital was around 27.6%.

Interestingly, Boston Beer does not rely much on debt. As of June, it had $254 million in equity, $25 million in cash and only around $1 million in long-term debt. Boston Beer continued to impress investors with good second-quarter earnings results. Its net income experienced year-over-year growth of 37% thanks to core shipment growth of 21%.

The accelerated growth in the second quarter was due to Samuel Adams beers and improvements in the distribution of Angry Orchard. Because of the high growth, the company had some product shortages at the end of the quarter. Consequently, Boston Beer will install a new bottling line to meet peak-week demand. Moreover, the company will enjoy higher growth in the future, with an increasing investment in production and R&D. The future seems to be quite bright for Boston Beer.

However, what worries me is its market high valuation. At $211.60 per share, Boston Beer is worth $2.7 billion in market cap. That means the market values Boston Beer at as much as 35 times its forward earnings.

Molson Coors and AB InBev have much lower valuations

Compared to its peers, including Molson Coors Brewing Company (NYSE:TAPand Anheuser Busch Inbev SA (ADR) (NYSE:BUD), Boston Beer has the highest valuation. Molson Coors Brewing Company (NYSE:TAP) is trading at around $52.50 per share, with a total market cap of $9.6 billion. The market values Molson Coors Brewing Company (NYSE:TAP) at only 12.45 times its forward earnings. In the past five years, Molson Coors Brewing Company (NYSE:TAP) has experienced significant improvements in its business.

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