Constellation Brands (STZ 0.60%) stock has regained all the ground it lost since the onset of the coronavirus pandemic and is trading just under its 52-week high as of this writing. With more occasions to drink at home because of the health crisis, the beer and wine producer has enjoyed strong consumer support for its brands.

Having also tapped into the still-burgeoning hard seltzer trend earlier this year, Constellation has been able to capitalize on the popularity of its leading Corona brand. Corona Hard Seltzer has catapulted over other major competitors into the No. 4 spot by market share.

Four cans of Corona Hard Seltzer next to a glass filled with ice and seltzer

Image source: Constellation Brands.

More growth on tap

Beer remains Constellation Brands' biggest driver, representing almost three-quarters of its fiscal second-quarter revenue. Both the Corona and Modelo family of beer continue to post strong depletions growth when other brewers are seeing this number decline (depletions are shipments to distributors and retailers, serving as an industry proxy for consumer demand).

For example, where Constellation saw depletions growth of almost 5% last quarter, Boston Beer notched yet another quarter with declining depletions for its flagship Samuel Adams beer. In fact, the brand has fallen every quarter for over five consecutive years. 

Constellation's performance is even more notable, because it was backed by an incredibly strong off-premise business that more than offset a 50% decline in on-premise sales due to the pandemic.

Bubbling quickly to the top

Though Mark Anthony Brands' White Claw remains the top dog in the hard seltzer market with an almost 60% market share, followed in second place by Boston Beer's Truly brand, it's an impressive achievement for Constellation to have come so far, so fast as its Corona Hard Seltzer now has a 6% share of the market.

Importantly, Constellation doesn't seem to have lost much, if any, beer sales in the process. There's only so much beer money to spend, so many brewers transitioning to offer seltzer are seeing beer sales sag. Nielsen data showed drinkers were consuming more seltzer earlier this year, leading to decreased demand for beer and wine.

The fact Corona has been able to grow both categories is a testament to the strength of the brand.

The biggest buzzkill

Investors, no doubt, are also wondering whether Constellation's $4 billion investment in Canadian pot grower Canopy Growth (CGC -2.43%) will begin to pay dividends soon. It's not likely, but don't dismiss the opportunity yet. Constellation hasn't written down the whole deal, either, although it has taken significant charges on the investment.

Canopy's recent earnings report suggests it's still going to be a long slog to profitability, but because it has the backing of Constellation, its financial picture and ability to stay the course are much better than those of competing cannabis producers.

With an ex-Constellation executive at the helm, costs are being reined in, and the company is narrowing its focus to its most important markets. The launch of CBD- and THC-infused beverages north of the border are where Constellation investors should see the best returns near term.

Is it worth it?

Constellation Brands is a powerhouse alcoholic beverage producer with winning brands and a growing business where others in its industry are seeing declines. Yet the market has priced a lot of the gains into the stock.

Although it trades at a seemingly reasonable 20 times forward earnings estimates, the stock also boasts a valuation of nearly five times sales and over 20 times free cash flow. As an industry leader, Constellation deserves a premium over many of its competitors, but these levels also suggest there's a limit to the upside potential compared to greater downside risk.

I like the long-term prospects for Constellation Brands as a whole, but there will be times when investors can get a better price for the stock.