Even when stocks are handily outperforming the market, there will be innumerable drops along the way -- often significant ones. While these sell-offs can stem from broader economic issues or short-term struggles a company faces, they can offer investors excellent buying opportunities.
Today we will look at two previously outperforming companies that got crushed in 2021 and discuss why their leadership positions in their respective industries make them look like fantastic buys.
Trading well above $1,000 per share earlier in 2021, Boston Beer (SAM -3.78%) has seen its stock plummet 60% over the past six months. This is thanks to an overconfident forecast for sales of its hard seltzer, Truly. As a result of overproduction, the company was forced to take a charge of $102 million during its second quarter, leading to a net loss of $4.76 per share. Making matters worse, Truly is only expected to grow between 0% and 10% in 2022, according to management.
As discouraging as these numbers are, it is worth remembering that hard-seltzer sales still account for only 11% of the company's overall revenue year to date. In fact, Boston Beer just recorded its 14th consecutive quarter of double-digit, year-over-year revenue growth.
This highlights the company's broader business and leadership position in the craft beer industry as it continues to tiptoe the line between being a tiny craft brewery and a juggernaut such as Anheuser-Busch InBev. By keeping its focus on this niche, Boston Beer is seeking to stay true to its innovative roots, of which the Truly brand is merely a small portion.
That said, Truly remains a promising story as CEO David Burwick explained during the third-quarter earnings call:
We also believe the Truly is blazing its own path and not following the category of like so many other entries. Thus, we believe we are well-positioned to succeed in the future when it will be much harder for new entrants to gain share. We've created [a] $1 billion dollar brand in only five years and we're confident we'll continue to grow it going forward.
It is this diversity of revenue creation that makes Boston Beer a well-positioned company and an outstanding stock. With the market resetting its expectations for this creative brewery as a whole, I remain optimistic about the company's outlook and believe its shares offer an excellent opportunity for investors.
Zoom Video Communications
As the "Great Resignation" continues its expansion throughout America, employees are not-so-subtlety asking for increased flexibility from their employers. According to a 2021 study by The Conference Board, the No. 1 trait job seekers are looking for in a new career is workplace location flexibility.
Ideally positioned to capture this seemingly unstoppable trend sits Zoom Video Communications (ZM -0.88%) and its near-ubiquitous tools for teleconferencing. Already a part of the general lexicon, the company's name is readily used to describe almost any form of cloud-based video communication -- highlighting its special place in this business niche.
The company certainly has a robust and growing user base. During the second quarter ended July 31, Zoom recorded over $1 billion in sales for the first time in its history -- and a 54% increase over the year-ago period. Speaking about this milestone, CFO Kelly Steckelberg explained, "Our net dollar expansion rate for customers with more than 10 employees exceeded 130% for the 13th consecutive quarter as existing customers increased their spend with Zoom and upsells of Zoom Phone and Zoom Rooms picked up pace."
However, by April the stock was priced for perfection. With the company guiding for slower sales growth and facing disappointment from calling off its merger with Five9, Zoom has since seen its shares drop over 40%. While guiding for only 30% revenue growth in 2022 may prove overly conservative, it was reasonable for management to do so as it continues to lap tough comparable numbers due to the pandemic.
Ultimately for investors, Zoom's long-term outlook remains intact. The company is solidly profitable, raking in $455 million in free cash flow just in the second quarter alone. And business continues to grow. For example, the number of enterprise customers spending over $1 million grew 77% from the year-ago period.
Buoyed by the megatrend of workplace flexibility, Zoom's combination of future revenue growth, strong current cash flow, and a stock-price drop of over 40% in the past few months makes it a genuinely alluring investment opportunity.