While most industries struggled in the past two years, the craft-beer market became the very definition of growth. Among the independent breweries though, one stood out - the Boston Beer Company (NYSE: SAM). Being someone who understands both beverages and economics, you'd surely say that the alcohol-fueled business mainly achieved success due to its appeal to budget seekers. Well, for the investor in you, knowing that the microbrewery offers inexpensive refreshments isn't enough. You'd have to think about the past, the present, and the future to decide whether you should make an investment.
Considering the Present
If you'd open any comparison sheet between beer companies, you'll realize that the famous microbrewer is much smaller than Anheuser-Busch (NYSE: BUD) - the globally-known maker of Budweiser and Becks. The former merely has a market cap of $2.16 billion while the latter is valued at roughly $140 billion. You might hastily believe that getting a few Boston Beer Company shares would be a waste of time, given the business' miniscule size. Well, you'd end up surprised after learning about this fact - the independent corporation's price-to-earnings ratio is much higher than that of Anheuser-Busch (by a little more than 20.00).
You'd also be impressed upon finding out that the craft-beer company is synonymous with earnings potential. Specifically, the firm has a PEG of 3.34 (five-year estimate), which is a lot higher than those of Budweiser's brewer and the industry average. Interestingly enough, the Boston Beer Company has a better PEG ratio than its closest competitor in the microbrewery scene - the Craft Brew Alliance (NASDAQ: BREW). These numbers are probably the key reason why many investors consider the Boston Beer Company as a must-add to any portfolio, which in turn explains the seemingly never-ending rise of the firm's per-share price.
Pondering Upon the Past
Now that you're aware of the fact that the popular craft-beer corporation's stocks are currently remarkable, you'd probably think of a certain question - does the firm have what it takes to continue its momentum? Most analysts would most certainly say yes. They'd point out that the company has a rich history of doing the right thing. Throughout its beginnings, the firm's founder - James Koch - didn't just aim to produce the finest American beer. He also made it a point to educate all alcoholic-beverage lovers throughout the nation that his offerings are proudly made in the USA. After all, in the late 1980s, most people still go for foreign beers.
As you've probably expected, the Boston Beer Company's first product - the Samuel Adams Boston Lager - transitioned from obscurity to dominance. As a matter of fact, the business' very own brew didn't just become a much more popular pick than Heineken, but it also won countless awards. Most importantly however, the craft beer changed America's drinking preferences (especially in terms of flavor, freshness, and quality), which in turn led to the microbrew revolution - a phase in beer-making history in which hundreds of independent breweries were established throughout the United States.
Think of Troubles Ahead
The Boston Beer Company already achieved success several decades ago and has remained successful throughout the years. Being a smart investor, you'd still have concerns about the future. Well, saturation is among the biggest threats to the firm, especially since there are currently countless microbrewers in America. How does the company fend off the competition? By coming up with new offerings and improving existing ones. For example, it would soon be selling whiskey (a move reminiscent of its decision to offer hard iced tea to counteract the low demand for beer in the late 1990s). Developing a craft-beer-friendly can is another.
Issues from saturation and competition do seem to be solvable through innovation and expansion. However, here's a problem that's much more unpredictable and complicated - the continuous need to be perfect. The Boston Beer Company hasn't yet suffered from issues associated with poor decisions and unmet expectations, which in turn explains why investors have always been optimistic about the worth of its stocks. What do you think would happen if the firm suddenly makes a wrong turn? Rest assured that its $170 per-share price would drop and many would sell. It's hard to deny that the faith of investors made the well-known craft-beer maker overvalued.
Multiple Choices and You
Right now, it's time to answer the question of "is it wise to invest in the Boston Beer Company?" Even though this article contains all sorts of encouraging information, you shouldn't assume that the answer is a resounding yes. Simply put, if you believe that the microbrewer's current leaders are more than capable of making the right decisions - or in a sense, ensuring perfection - in the years to come, then you really should buy its (expensive) stocks. Otherwise, you could take a chance on the young, relatively fast-growing Craft Brew Alliance - $7.90 per share - or choose the stable but stagnant Anheuser-Busch that has an $87.24 stock price.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.