Boston Beer Co Inc (NYSE:SAM) lost some ground to other craft brewers last quarter as Sam Adams sales dipped. Nevertheless, this brewer’s investment in hard cider beverages continues to pay off. The brewer also funds a research organization that has other craft beers under development. Investors remain concerned about Boston Beer Co Inc (NYSE:SAM)’s valuation, though. Here are three reasons Boston Beer could still be a promising investment at this level.
Boston Beer Co Inc (NYSE:SAM) suffered from high expectations in 1Q 2013. The brewer posted 20.0% overall sales growth, which doesn’t look bad at all. Boston Beer’s profits fell 7.8%, but the brewer’s costs rose partially because of ad spending that could help grow sales in the long run. The craft beer maker dropped from above $170 a share to a low around $145 in the days following its earnings announcement. Now the brewer’s stock has returned to the $155 level, which results in a pricy 36 P/E ratio.
Boston Beer Co Inc (NYSE:SAM) still beat the Craft Brew Alliance Inc (NASDAQ:BREW) this reporting period. The Craft Brew Alliance Inc (NASDAQ:BREW) posted 4.9% weaker sales and a $1.77 million loss for 1Q 2013. The Craft Beer Alliance did note that it had developed a cider brand called Square Mile, which could challenge Boston Beer’s cider beverages. With a price to book ratio of 1.35, value could also limit the downside for the Craft Beer Alliance. Boston Beer Co Inc (NYSE:SAM) looks like the clear growth leader in the craft beer business at the moment, though.
According to the Brewer’s Association, in 2012 craft beer companies sold 13.2 million barrels of beer in the United States, and all domestic beer companies sold a total of 200 million barrels. Craft beer made up 6.6% of domestic beer sales by volume last year, so even if upstarts challenge Boston Beer and the Craft Beer Alliance, the craft beer market doesn’t look saturated.
Price hikes from traditional brewers could reduce the price difference between craft beer and traditional beer brands. Anheuser-Busch InBev NV (ADR) (NYSE:BUD) reported 21.5% income growth and -1.7% sales growth in 1Q 2013, according to Yahoo! Finance. The Belgian brewer also provided regional sales figures, noting that its North America sales by volume fell 5% for the quarter. Anheuser-Busch blamed macro factors that included spring weather and fuel costs for its North America results. Macro factors might have cost the Craft Beer Alliance and Boston Beer some sales in 1Q 2013 as well, again indicating that these craft brewers have better prospects than last quarter’s results suggest. After these results, the craft brewers still look like they can take market share from Anheuser-Busch InBev NV (ADR) (NYSE:BUD).
Boston Beer specifically pointed out that strong sales of both Angry Orchard and Twisted Tea in 1Q 2013 bolstered its overall results. These beverages demonstrate that Boston Beer isn’t a one-trick pony, although relying on new drinks to maintain sales growth adds additional risks. The brewer’s Alchemy & Science project could help deliver these new beverages. The Angel City Brewery, in downtown Los Angeles, lists a variety of beers that might join Sam Adams’ lineup in the future.
Boston Beer has attracted the bears. Yahoo! Finance states that 22.1% of the brewer’s float was short at the end of April. Nevertheless, Boston Beer has a four-star CAPS rating and popular products. The brewer’s seasonal brews and alternative beverages have paid off in the past. With additional projects in the works, more popular beverages could show up on the shelves soon. Boston Beer’s sales trends look better than competitors in the craft beer business as well. This brewer looks like it can keep delivering strong results.