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Buy, Sell, or Hold: Boston Beer

So far in 2012, Boston Beer (NYSE: SAM  ) , brewer of Samuel Adams and other craft beers, is flat with a 0.5% gain. Past performance isn't enough for an investing decision, though, so let's take a look at what's going on behind the scenes at this company.

One of the least-cited signs of a great company to invest in is inside ownership. If the executive team members have the same (or greater) stake in the company than you would, then your interests are aligned. The team over at Boston Beer owns 34% of the company's outstanding shares, which is a decent chunk.

Another thing to watch is market share. In 2011, Boston Beer stepped over the 1% threshold of U.S. beer market share. It sounds like a silly thing for the company to boast about, but it's difficult to gain footing in the beer market, with two big players Anheuser-Busch Inbev (NYSE: BUD  ) and Molson Coors (NYSE: TAP  ) controlling 48.3% and 30% of the U.S. beer market share, respectively. Boston Beer's 1% makes it a substantial player while still maintaining the small craft brewery image it promotes.

Overall beer sales have dropped 6% over the last decade, while wine and spirits are up 6%. This means that it may be better to look into companies such as Diageo (NYSE: DEO  ) or Beam (Nasdaq: BEAM  ) to quench your portfolio.

It's also important to note that while Boston Beer has managed to increase profit margins over the last three years, this doesn't necessarily signal increased pricing power. Pricing power in the industry actually goes to the two big players mentioned earlier -- Anheuser-Busch and Molson Coors.

Because those two companies raised prices in 2011, Boston Beer was able to do the same. If they were to drop prices, though, the same would be true, and that could hurt Boston Beer's bottom line. That lack of power might be scary for more conservative investors.

Boston Beer is revving up for a lot of growth and expansion, and this could be both good and bad for the company. The company is bringing a keen eye and hopes to make smart acquisitions with its new venture, Alchemy & Science. But it is pricier than some industry cohorts, and with overall beer volume shrinking, it could run into trouble down the road.

Despite that, though, the craft brew market is still growing, and nationwide demand for new and exciting beers is growing. As long as Boston Beer can maintain its image within the craft brew segment while still growing the bottom line, then investors should be happy. But that's a fine line to walk.

I've given the company a thumbs-up CAPScall, but only you can decide whether it's the great next pick for your own portfolio. If you're looking for another great stock to put on your radar, click here to read about The Motley Fool's Top Stock for 2012.

Fool contributor Amanda Buchanan owns shares of Diageo, but she holds no other position in any company mentioned. Click here to see her holdings and a short bio. The Motley Fool owns shares of Boston Beer. Motley Fool newsletter services have recommended buying shares of Diageo, Beam, Molson Coors Brewing, and Boston Beer. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

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