I have been increasing my short positions over the last few weeks as I think the market is overbought at these levels after months of rallying. I also think the headwinds over the next few months (Europe, fiscal cliff, elections, etc.) are substantial. One short I added this week is Boston Beer (SAM). This was a difficult position to pull the trigger on as I love the company's products (particularly the Oktoberfest), but the negatives are starting to pile up and the stock's valuation is stretched at these levels.
Recent negatives for SAM:
- UBS just cut the shares to "sell" from "neutral" and lowered its price target to $96 a share. It seems downside risk to earnings estimates and new product distribution has stalled.
- Consensus earnings estimates for both FY2012 and FY2013 have come down over the past two months.
- The stock has run some 50% in the last year and is now above the median analyst price target of $103.50 a share.
- The company missed on the top and the bottom lines in its last earnings report, margins also shrank across the board.
- Barley prices are high right now and this will also could impact margins in the quarters ahead.
I am short this stock at $109 a share for a variety of reasons.
- Insiders have sold over 25% of their holdings over the previous six months. There have been no insider purchases over that time frame. Not exactly a vote of confidence.
- The stock is selling near the top of its five-year valuation range based on P/E, P/S and P/B.
- Sales growth is slowing. The company averaged just under 11% revenue growth annually over the last five years. However, analysts only expect 8% to 9% during FY2012 and FY2013. SAM has a five-year projected PEG of almost 3 (2.93)
- Despite a nice move in net income over the past three years, operating cash flow has barely budged.
- The company does not pay a dividend like competitors Molson Golden (TAP) or Heineken (HINKY.PK).
Disclosure: I am short SAM.