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Is Boston Beer A Safe Stock For The Investors?

April 24, 2015 | About:

The Boston Beer Company (NYSE:SAM), founded in 1984 by Jim Koch, Harry Rubin and Lorenzo Lamadrid, is among the largest craft brewers in the United States. The company has its headquarters in Boston, Massachusetts, with an employee count of 1,120. The brand Samuel Adams of Boston Beer is the U.S. favorite, accounting for nearly 1% of the U.S. beer market. Although the overall beer sales of the country remained steady in the past still the craft beer sales continue to grow. In the fiscal 2014 Boston Beer sold about 4.1 million barrels of its products which contains of more than 60 styles.

The positive factors for investing

The company is expected to generate positive free cash flow this year due to its improved low financial leverage against its unimpressive free cash flow in the recent years. At present the company has an impressive price to earnings ratio of around 40 indicating an increased demand from investors who are anticipating earnings growth in the future.

The company has been trustworthy among its shareholders as it is generating good economic value with a progressive track record in the recent years. The company has a current market capitalization of $3.5 billion with return on Invested Capitals around 26% averaged over last five years showing good managerial performance. The return on equity of the company is over 29% averaged over the last five years.

The craft beer market share by volume is more than 22% presently, and has grown by 12% in the recent times. In the last five years the average sales growth of the firm is around 15.1% and Earnings per share growth is 47%. Boston beer leads the Craft beer Industry against regular domestics, indicating positive growth prospects in the future.

Analysis of cash in, and cash out

The annual capital expenditure has drastically increased to $151.78 million in 2014 from $66 million in 2012. On the other hand, annual cash flow from operations has only risen to $141.21 million in 2014 from $95.33 million in 2012.This recent enhanced capital expenditure before 2015 will benefit in the long term growth even though it has hurt the free cash flow since the firm leads in craft beer Industry. In 2015, Boston beer group is expected to reduce its capital expenditure which in turn will generate positive free cash flows.

Competitive analysis

Boston Beer Company is looking good in terms of returns in past three years as compared to its competitors such as Molson Coors Brewing (NYSE:TAP), a North American Brewing Company and Anheuser-Busch InBev (ABI), a multinational beverage and brewing company headquartered in Belgium. Molson Coors Brewing is world’s seventh largest Brewing Company with headquarters in Denver, United States. Anheuser-Busch InBev is world’s largest Brewer with a market share of 25% globally.

The three year return rate of Boston Beer is 163.9% as compared to 82.28% of Anheuser-Busch InBev and 97.46% of Molson Coors Brewing. This shows positive growth trends for the firm and looks good in terms of investing as compared to other global giants.

Concluding note

The Boston Beer company under its CEO Martin Roper regularly participates in global competitions and festivals and is one of the most awarded breweries across the globe. The company seems to be committed to cater to the ever-changing needs of its customers by improving its brewing quality. The company also led the ‘extreme beer’ movement where they enhanced the drinker’s perception of the quality beer. The positive free cash flow and a progressive track record look promising in the view of long term investing as well for the investors.


Rating: 5.0/5 (1 vote)

Voters:

Comments

FilipH
FilipH premium member - 3 years ago

Hi all,

Can somebody enlighten me as to why SAM dropped +/- 50% in stock price over the past few months?

Growth slowdown? mr. Market's mood? ...?

Many thanks, Filip.

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