Boston Beer (NYSE:SAM) just crossed the $1,000 stock price threshold for the first time ever as the brewer and beverage maker has gone on a year-long tear.
Despite declining demand from on-premise sales as pandemic-induced capacity restrictions on bars and restaurants limit the channel's ability to meaningfully contribute to sales and profits, at-home consumption continues to explode.
With the stock nearly 300% higher than the low-point it hit in March -- and almost 200% above where it started 2020 -- let's see if investors should consider buying the owner of Samuel Adams beer, Truly hard seltzer, and Angry Orchard hard cider.
Boston Beer has come a long way from being the premier craft brewer in the country, but today it produces far more alcoholic beverages that aren't beer than are. The growth of hard seltzer as the beverage of choice for many of today's drinkers is what helped reverse the brewer's years-long decline as its Samuel Adams beer fell out of favor.
Truly hard seltzer remains the second-biggest brand on the market with about a 25% share, behind Mark Anthony Brands' White Claw, but the brewer says Truly is the only national hard seltzer that expanded its market share this year.
Boston Beer continues to expand the Truly brand, too. It introduced Truly Lemonade earlier this year to some high praise, and it plans to introduce more varieties over the next year, including iced tea, a version that has higher alcohol by volume, and other flavors and sizes.
All seltzer all the time
The risk for Boston Beer is that it is becoming highly reliant upon hard seltzer in the way it became dependent upon the craft beer trend. Yet like craft beer produced decades of growth before it was supplanted by different consumer preferences, there's a good possibility hard seltzer can do the same.
Convenience store sales of hard seltzer continue to grow at triple-digit rates, much as they have for the past several years, and some analysts believe hard seltzer can become a $14.5 billion industry in its own right by 2027.
Although there was some concern at the outset that hard seltzer would suffer the same "boom-splat" phenomenon as hard soda did, seltzer is better positioned because it is seen as lighter, healthier, and better option than were sugar-laden sodas.
It appears Boston Beer has a lot more upside here before it has to worry about the next new thing in alcoholic beverages.
A pricey proposition
Yet Boston Beer's stock trades at over 100 times trailing earnings and over 55 times next year's estimates. Across multiple metrics, the brewer offers a premium valuation and, with the stock going for 95 times the free cash flow it produces, this is not a discounted investment.
As recently as this past June, analysts were thinking Boston Beer could hit $650 a share, and it quickly blew past those estimates. One of the arguments often made against shorting stocks is that markets can remain irrational far longer than you can remain solvent.
The brewer's current valuation isn't necessarily irrational, and there are actually factors that favor additional future growth.
New opportunities for expansion
The on-premise channel is likely to come back in a significant way next year, which should help the brewer's brands that have lagged. While Samuel Adams isn't likely to see any new growth spurts, even with a new nonalcoholic version, the Dogfish Head business it acquired could get a nice jolt.
Boston Beer has also been struggling with capacity constraints in meeting demand, causing costs to rise from using third-party breweries. It will have new canning capacity of its own available soon and more brewing capacity, so profits should expand due to lower expenses.
I wouldn't recommend doing a deep dive into Boston Beer's stock because it has come very far very fast, but this is a growth story that hasn't finished playing out yet, and the stock is one that's worthy of still being in an investor's portfolio.