Valuation
Molson Coors trades for 14.5 times TTM earnings, which are forecast to rise by around 5% annually over the next several years. I personally think that the stock is a bit overpriced right now, with slow growth and about $1 billion in net debt. Unless the company provides new growth plans or a rosier outlook for the next several years, I actually think we’ll see a pullback to the lower end of the trading range mentioned earlier.
Anheuser-Busch InBev trades at 19.2 times earnings, however they are growing more aggressively by far. Consensus estimates call for earnings to rise at a 14.3% average annual rate over the next three years, which more than justifies the higher valuation.
Frequent readers know my “valuation rule” to roughly estimate whether a stock is fairly valued. Take the forward growth rate and double it. This number should be more than the P/E multiple, unless the company has a gigantic cash position or other extenuating issues. Anheuser-Busch Inbev qualifies. Molson Coors, sadly, does not.
Even the Boston Beer Company looks more attractive as an investment. The maker of Sam Adams trades at 31 times earnings, with a 15% forward growth rate and has about $50 million in cash and NO debt whatsoever.
Conclusion
As far as Molson Coors goes, my opinion is to basically “wait and see.” In other words, I need the company to give me a reason to invest in it. Although I believe they make a quality product, I need them to show me signs of growth comparable to their peers, or at least growth at a level that is on par with the valuation.
The article Good Product But An Expensive Stock originally appeared on Fool.com and is written by Matthew Frankel.
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