Despite an eye-popping rise of almost 200% in the last 8 months, at the current price of over $900 per share, Boston Beer Company stock (NYSE: SAM) still appears to have some upside potential left. Boston Beer Company is a high-end alcoholic beverage company and one of the largest craft brewers in the United States, that produces alcohol beverages including malt beverages (“beers”), hard seltzer, and hard cider. SAM’s stock has rallied from $306 to $903 off the recent bottom in March compared to the S&P 500 which increased 60% during the same period. The stock was able to beat the broader market over the last 8 months, with the US government announcing a string of measures along with stimulus packages announced in other economies to keep businesses afloat, and the easing of supply constraints with lockdowns being gradually lifted. Additionally, with health conscious consumers leading to sharp growth in demand for seltzers, the company has managed to report strong Q2 and Q3 2020 results. As demand remains strong and the supply network gets back on track, the revenue and earnings growth is set to continue over the coming quarters driven by larger volume sold. Thus, despite the stock being more than 370% above its December 2017 level, SAM stock is likely to rise another 15% from here. Our dashboard What Factors Drove 373% Change In Boston Beer Company Stock Between 2017 And Now? provides the key numbers behind our thinking.
Some of the stock price rise between 2017-2019 is justified by the 45% increase in SAM’s revenues from $0.9 billion in 2017 to $1.2 billion in 2019. Revenue growth was driven by strong volume and price growth, primarily due to an increase in shipments of Truly Hard Seltzer and Twisted Tea and the addition of the Dogfish Head brands. With a slight drop in shares outstanding, the revenue per share also saw a rise of 48% during this period.
Another major factor contributing toward the rise in stock price was the 34% rise in the P/S multiple. This was because along with strong revenue growth, the market was valuing the stock favorably on expectations of continued healthy growth in the coming quarters, as well. The P/S multiple saw a huge jump in 2020 from under 4x in December 2019 to 9x currently. This was mainly with the company reporting strong results over the last two quarters and increasing its outlook. The P/S multiple is likely to remain elevated at the current level, while higher revenue will drive the stock price higher.
The global spread of coronavirus led to lockdown in various cities across the globe, which affected industrial and economic activity along with consumer demand. However, Boston Beer Company’s business was not severely affected due to the pandemic with the seltzer market seeing continuous growth. The only impact on the company was reduction in demand from the on-premise channel and higher labor and safety related costs. SAM’s revenues increased 30% y-o-y in Q3 2020 and 42% in Q2 2020 due to higher volume sold, mainly an increase in shipments of Truly Hard Seltzer and Twisted Tea brand products and the addition of Dogfish Head brand product.
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As the global economy opens up and lockdowns are lifted in phases, consumer demand is slowly picking up further and supply impediments are easing. Further recovery and its timing will also hinge on the broader containment of the coronavirus spread. Our dashboard Trends In U.S. Covid-19 Cases provides an overview of how the pandemic has been spreading in the U.S. and contrasts with trends in Brazil and Russia. The company increased its 2020 earnings outlook from the earlier estimate of between $11.70 – $12.70 to between $14 to $15. This is a sharp rise in outlook which has added to the market enthusiasm seen over recent months. Additionally, early in 2021, the company plans to introduce Truly Iced Tea Hard Seltzer, Truly Extra – a higher ABV [alcohol by volume] version of Truly, and other new Truly flavors and package sizes. These new introductions along with higher demand for seltzers from the health conscious consumers will drive healthy growth in revenue and earnings in 2021 as well.
With investors’ focus having already shifted to 2021, the stock will rise further despite such a sharp growth so far this year. Yet, the recent surge in Covid positive cases in the US and Europe could prove to be a hiccup in this growth path. If the rise in cases warrant a re-imposition of lockdowns, then the stock could see near-term volatility. However, the strong growth trajectory and the expected new product launches in 2021 will offset the near-term risks and will lead to a rise in the stock price. We believe SAM’s investors have an opportunity to see a further rise of 15% in their wealth as the stock is expected to breach the $1,000 level soon and, in fact, go close to $1,050 per share.
In comparison, see what has led to 40% decline in Anheuser-Busch InBev’s stock.
What if you’re looking for a more balanced portfolio instead? Here’s a high quality portfolio to beat the market, with over 100% return since 2016, versus 55% for the S&P 500. Comprised of companies with strong revenue growth, healthy profits, lots of cash, and low risk, it has outperformed the broader market year after year, consistently.
Source: Forbes – Money