Is the latest spill in Boston Beer Company (NYSE:SAM) a buying opportunity? SAM stock is down 18.1% from its 2020 high amid the overall market decline.
That fall is about in-line with the S&P 500, as both assets search for direction amid the coronavirus scare. However, Boston Beer has a few things working in its favor. That is, both short- and long-term trends that are driving its business right now.
It’s not often a company can benefit from both tailwinds, as many times there is a trade-off between the two. At least, that goes for the business (which we’ll discuss in a minute). The stock hasn’t been so lucky, as broad-market selling keeps the pressure on SAM stock.
Trends for SAM Stock
The coronavirus scare has only a few stocks feeling the love. Biotech companies working on a potential vaccine and/or cure have risen. Some grocery plays like Kroger (NYSE:KR) and Walmart (NYSE:WMT) have hit new highs, although they’ve been volatile too.
By and large, most stocks have suffered, Boston Beer included. But as the public flocks to the store, what exactly are they buying?
According to data from Nielsen, U.S. spirit, wine and beer sales are climbing. In the week ending March 14, sales for those categories climbed 26%, 28%, and 14%, respectively. While that lagged the overall climb in retail sales of 40%, it’s clear that Americans view alcohol as an important stocking-up category.
This is a bit of a silver lining, though. While these companies are surely benefiting from a spike in retail sales, they are suffering from a decline in on-premise sales, (restaurants, bars, etc.). It’s unlikely that increasing sales at the store will offset these losses, but it’s a much better scenario than what many companies are experiencing at the moment.
Longer term, Boston Beer has some growth levers to pull as well. Beer consumption trends ebb and flow as the years go by, but right now, it’s all about the hard seltzer. The company’s Truly brand offers Boston Beer notable upside potential should we see the summertime surge in sales.
The trend has drawn in more competition. However, White Claw and Truly really are market leaders, and the excess competition may very well act to bolster recognition for the budding hard seltzer space without taking away market share relative to increasing sales.
Boston Beer has a stable lineup of beers and ciders, but Truly is a “call option” of upside.
The Boston Beer Top?
Boston Beer reported earnings on Feb. 19, the same day the S&P 500 hit a new all-time high. The company beat on sales estimates, while earnings of $1.24 per share missed expectations by 35 cents.
While the company is well-positioned for growth and has a stable line-up, the earnings miss was a bit concerning. It was “primarily due to increases in advertising, promotional and selling expenses and lower gross margins,” according to the company.
We’re not talking a miss by a couple of cents; Boston Beer’s profits were more than 20% below expectations.
Still, this company has an opportunity for serious revenue and shipment growth in the upcoming quarters. If it can reign in its spending a bit, investors may be very pleased with the results.
On-premise sales will take a hit, but thankfully, Boston Beer is not a small-town brewer. Cowen analysts say larger brewers have been able to keep up with demand, which should help limit the financial impact these companies see from the coronavirus, despite hits to their stock prices.
Analysts still expect 21.4% sales growth this year and more than 16% growth in 2021. On the earnings front, growth estimates sit at 13% and 25% for 2020 and 2021, respectively. While there is obviously uncertainty around those figures amid these uncertain times, it underscores the growth opportunity that’s present in SAM stock due to these short- and long-term tailwinds.
Matthew McCall left Wall Street to actually help investors — by getting them into the world’s biggest, most revolutionary trends BEFORE anyone else. The power of being “first” gave Matt’s readers the chance to bank +2,438% in Stamps.com (STMP), +1,523% in Ulta Beauty (ULTA) and +1,044% in Tesla (TSLA), just to name a few. Click here to see what Matt has up his sleeve now. Matt does not directly own the aforementioned securities.