Getting Hooked on Craft Brewers Alliance

I'm being followed. By a beer company.

A few weeks ago, I came across the Craft Brewers Alliance (Nasdaq: HOOK  ) as I was doing research on beer stocks. Though I'd never seen the company's name before, I immediately recognized its flagship brands: Red Hook, Long Hammer, Goose Island, and Kona. That's probably because I'm a devotee of the craft brew section of my local grocery store.

Still, I wasn't immediately interested in owning the stock. Though its brands are gaining in popularity, the company is a micro-cap, with a value south of $200 million. And what analyst coverage the company does receive mostly involves people thinking it's overvalued. According to its most recent quarterly report, Craft Brewers Alliance only had $13,000 in cash and equivalents and a current ratio below 0.9. Not the most reassuring numbers...

At the beck and call of Bud and Beck's
What's more, the company is at the beck and call of Anheuser-Busch InBev (NYSE: BUD  ) . The beer giant gets to appoint two members of CBA's board of directors, and has a slew of limitations on the company's freedom -- not to mention its ownership of roughly 35% of Craft Brewers's stock.

Craft Brewers Alliance also has a deal to use Anheuser-Busch InBev's distribution system (which is a good thing, giving the smaller company nationwide distribution), but Anheuser-Busch InBev generates quite a bit of fees from this. And as Anheuser-Busch InBev offers this option to more and more craft brewers, what once might have been the craft niche's serious advantage in this highly competitive market will erode.

And yet...
I'm not just a fan of the craft-brew category. I'm also convinced of its long-term consumer appeal and huge potential for growth. Craft beer is really beginning to catch on, and not just among my own Whole-Foods-obsessed, vegan-shoe-wearing, often-tiresomely sanctimonious-about-what-they-consume yuppie crowd.

According to the Craft Brewers Alliance's last annual report, "Shipments of craft beer in the United States in 2009 are estimated by industry sources to have increased by approximately 7.2% over 2008 shipments, up from a 5.9% shipment increase for 2008 from 2007. The growth rate of the craft beer segment ran counter to the activity in every other segment of the beer industry." Long term, this popularity bodes well for Craft Brewers Alliance, its mission and its bottom line.

Sure, you might not hold up Craft Brewers Alliance as a pillar of financial strength right now. But the company is free cash flow-positive -- not bad for a fairly small business.

Now the part about me being followed
Furthermore, I keep seeing Craft Brewers Alliance brands everywhere I go. A weekend or two ago, at a sports bar, I found the place had Long Hammer IPA on draft (delicious but strong -- watch that 6.5% ABV). Then at Safeway, shopping for Super Bowl snacks, I saw Craft Brewers's brands in three different places along the beer aisle. On game day, a friend brought over a six-pack of -- what else? -- Widmer Hefeweizen, another of the company's beers.

"HOOK is stalking you," said my husband.

"Or I'm stalking it," I said.

But I can't be the only one having this experience, right? Isn't this little beer company becoming ubiquitous? I believe it is, which is why I've finally bought some of its stock. In for an excellent hefeweizen, in for some shares. Watch this space.

Catherine Baab-Muguira owns shares of Craft Brewers Alliance. She wishes to thank fellow fool Adam Wiederman for help with the numbers. Whole Foods Market is a Motley Fool Stock Advisor pick. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


Read/Post Comments (6) | Recommend This Article (19)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On February 16, 2011, at 11:47 AM, TMFMuse wrote:

    Red Hook ESB was one of my gateway beers back in the days before Hook was HOOK. It's been stalking me ever since -- on store shelves and stadiums.

    I see their cozy relationship with BUD as an advantage (market savvy, distribution, leadership) more than a liability. Long term, I wouldn't be surprised to see an outright acquisition.

    While I prefer the independent SAM as a business, and the irreverent Dogfish Head as a brew, HOOK is on my shelf from time to time, and my modest position has "trippeled" in under a year.

    HOOK definitely deserves a spot on anyone's Watchlist.

    Cheers!

  • Report this Comment On February 19, 2011, at 1:33 AM, natemcgraw wrote:

    I live in Hawaii and I'm an avid consumer of Kona beers. I was lucky enough to get in on HOOK when it was just above a dollar last year (invest it what you know, right?). Needless to say I am extremely happy with the results thus far and will continue to hold this stock as I really believe in the potential for continued growth in this company.

  • Report this Comment On March 01, 2011, at 5:46 PM, jabit wrote:

    a friend of mine turned me on to Goose Island IPA...now one of may favorites...along with DogFish. Then I realized they were part of HOOK. I have bought the stock as well and look forward to trying some of their other brands. Wholefoods seems to be the best choice these days for finding most varieties of Craft Beer.

  • Report this Comment On February 26, 2012, at 10:44 PM, dbernhard wrote:

    I know I am very late to this thread, but I thought I'd chime in that I am now a modest holder of HOOK. After cashing in another stock that had previously been my and my wife's "fun, risky, we-like-it-so-what-the-h#$%?" line on our account (after a 200% profit); I found HOOK as an attractive alternative to Sam Adams.

    We all need a little heart and fun on our account position reports, right?

  • Report this Comment On May 04, 2012, at 9:00 AM, redtiger12 wrote:

    Isn't the ticker symbol actually BREW and not HOOK?

  • Report this Comment On May 04, 2012, at 9:14 AM, redtiger12 wrote:

    I just noticed this URL. They used to be HOOK, but they changed to BREW on March 22nd, 2012.

    http://phx.corporate-ir.net/phoenix.zhtml?c=95666&p=irol...

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