Source: Widmer Brothers

You know about socially responsible investing (SRI), where investors steer clear of certain industries – for example, guns, alcohol, tobacco, gambling, military equipment, and prisons -- on principle, objecting to their role in society. But have you thought of investing in these industries on purpose, and adding a sin stock or two to your portfolio? If so, you might want to consider Craft Brew Alliance Inc (NASDAQ:BREW), a small company (market capitalization is below $300 million) specializing in craft brews.

It's not such a crazy idea, as long as your values permit it. The USA Mutuals Barrier Investor (VICEX) mutual fund, for example, focuses its assets solely on "sin" stocks, and has outperformed the S&P 500 over the past five and 10 years (though it lags it a bit over the past three).

Why might you buy Craft Brew Alliance Inc?

Craft Brew Alliance traces its roots back to small beermakers in the early 1980s, but it was officially formed in 2008 when Widmer Brothers Brewing merged with Redhook Ale Brewery. Now the company sports several main brand families: Kona, Redhook, Widmer Brothers, Omission, and Square Mile Cider. Based in Portland, Oregon, it's positioned to profit from sales growth in craft beers that's outstripping growth for mainstream beers. According to a company presentation, the average annual growth rate for craft beers over the five years ending in 2013 was 14%, vs. a 1% loss for domestic beers. (Imported beers grew 4%.)

In its last quarter, reported in August, Craft Brew posted "depletion volume" growth of 12%, meaning that compared to the year before, 12% more of its beer moved from distributors to retailers. Revenue rose 11%, earnings doubled, and gross profit margins improved, too. The company, selling most of its volume in the Western part of the U.S., sees lots of room for growth in the rest of the country.

Source: Brewers Association

Another appealing thing about Craft Brew Alliance is its willingness to think outside the box, such as via its partnership with Buffalo Wild Wings (NASDAQ:BWLD), where it developed a beer exclusively for the company – Red Hook Game Changer Ale – which turned out to be a big seller. That's not only good now, but Buffalo Wild Wings is growing briskly, and that should drive more beer sales, too. (Buffalo Wild Wings's average annual revenue growth over the past five years tops 22%.)

Why might you steer clear of Craft Brew Alliance Inc?

One concern for Craft Brew and other craft brewers is that there are now a heck of a lot of them, and that can create competitive pressures and make it hard to stand out – or get placed on shelves or in bar taps. Also, they're still competing with the big, mainstream beer companies – which also sell craft beers. The top craft brand, for example, Blue Moon, is owned by Molson Coors. (Anheuser-Busch InBev actually owns 32% of Craft Brew. That's not a bad thing, though, as it provides a massive distribution network.)

Meanwhile, smaller beer companies such as Craft Brew face some risks more than their larger competitors do, such as unexpected government shutdowns affecting their approval process for seasonal beers. Craft beers also tend to cost more than cans of mainstream beer, and thus can be more sensitive to economic downswings, when consumers tighten belts. Overall, alcohol consumption has held relatively steady in America. It tends to fluctuate within a long-standing range, with between about 55% and 70% of Americans imbibing.

The weakness in beer overall is a bit troubling, too, despite the growth in craft beers. Between 2007 and 2012, beer consumption fell by 4%, while wine grew by 9% and spirits by 13%. If that trend continued, it will likely eventually affect craft brewers.

A last reason to steer clear of Craft Brew is its stock's valuation, as its P/E ratio was recently 62, and its forward-looking P/E sits at 42. Both are below the stock's five-year average of 68, though. (The company's price-to-sales ratio and price-to-cash-flow ratios are both above their five-year averages.)

Overall, this is an interesting investing niche, for those who aren't bothered by its "sin"-ful nature. But this stock doesn't seem like a screaming buy at recent levels. Perhaps add it to your watch list, if you'd like to own it.