The stock of Boston Beer Co (NYSE:SAM, 30-year Financials) shows every sign of being significantly overvalued, according to GuruFocus Value calculation. GuruFocus Value is GuruFocus' estimate of the fair value at which the stock should be traded. It is calculated based on the historical multiples that the stock has traded at, the past business growth and analyst estimates of future business performance. If the price of a stock is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. On the other hand, if it is significantly below the GF Value Line, its future return will likely be higher. At its current price of $1131.14 per share and the market cap of $13.9 billion, Boston Beer Co stock gives every indication of being significantly overvalued. GF Value for Boston Beer Co is shown in the chart below.
Because Boston Beer Co is significantly overvalued, the long-term return of its stock is likely to be much lower than its future business growth, which averaged 25.9% over the past three years and is estimated to grow 26.61% annually over the next three to five years.
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Investing in companies with poor financial strength has a higher risk of permanent loss of capital. Thus, it is important to carefully review the financial strength of a company before deciding whether to buy its stock. Looking at the cash-to-debt ratio and interest coverage is a great starting point for understanding the financial strength of a company. Boston Beer Co has a cash-to-debt ratio of 2.21, which is in the middle range of the companies in the industry of Beverages - Alcoholic. GuruFocus ranks the overall financial strength of Boston Beer Co at 8 out of 10, which indicates that the financial strength of Boston Beer Co is strong. This is the debt and cash of Boston Beer Co over the past years:
It is less risky to invest in profitable companies, especially those with consistent profitability over long term. A company with high profit margins is usually a safer investment than those with low profit margins. Boston Beer Co has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $2 billion and earnings of $19.29 a share. Its operating margin is 15.50%, which ranks better than 72% of the companies in the industry of Beverages - Alcoholic. Overall, the profitability of Boston Beer Co is ranked 9 out of 10, which indicates strong profitability. This is the revenue and net income of Boston Beer Co over the past years:
Growth is probably one of the most important factors in the valuation of a company. GuruFocus' research has found that growth is closely correlated with the long-term performance of a company's stock. If a company's business is growing, the company usually creates value for its shareholders, especially if the growth is profitable. Likewise, if a company's revenue and earnings are declining, the value of the company will decrease. Boston Beer Co's 3-year average revenue growth rate is better than 92% of the companies in the industry of Beverages - Alcoholic. Boston Beer Co's 3-year average EBITDA growth rate is 22.5%, which ranks better than 83% of the companies in the industry of Beverages - Alcoholic.
Another method of determining the profitability of a company is to compare its return on invested capital to the weighted average cost of capital. Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. When the ROIC is higher than the WACC, it implies the company is creating value for shareholders. For the past 12 months, Boston Beer Co's return on invested capital is 25.08, and its cost of capital is 5.98. The historical ROIC vs WACC comparison of Boston Beer Co is shown below:
In closing, Boston Beer Co (NYSE:SAM, 30-year Financials) stock is estimated to be significantly overvalued. The company's financial condition is strong and its profitability is strong. Its growth ranks better than 83% of the companies in the industry of Beverages - Alcoholic. To learn more about Boston Beer Co stock, you can check out its 30-year Financials here.
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