Boston Beer (NYSE: SAM) set the beverage world alight on Thursday after it beat Wall Street’s Q2 earnings estimate. A beer company exploding during a pandemic might sound unusual. However, the growing light beer industry, and the high demand for alcohol during tough times would say otherwise. The quietness on the vaccine front and the ever increasing concerns of a tech bubble could see investors gravitate towards Boston Beer’s. However, investors might be unsure whether there is still room for future bullish activity come next week. Thus, this article aims to provide our readers with an objective take on Boston Beer and whether we see value.
Table of contents 1. SAM's Q2 Earnings 2. Boston Beer's future role in the light beer industry. 3. Does YIG see value in an investment?
Why did Boston Beer surge 25% on Friday?
Last Thursday Boston Beer posted a 42% increase YOY in revenue, totalling $452.1 million, alongside a 116% increase in earnings. At face value you might say that’s impressive. However, in the world of earnings, numbers are usually only noteworthy if they beat expectations and historical records. Boston Beer not only crushed their 2019 financials but also exceeded Zacks Consensus estimate of $419 million in revenue.
Investors instantly began snapping up Boston shares. Rallies after positive earnings are a common sight. However, the true question, especially for avid value investors, is why did Boston Beer’s earnings climb higher? First, it seems people’s growing appetite for alcohol during the pandemic is the driving force in the earnings increase. Second, the increase of health conscious drinking especially in light beer, which might sound ironic to some, contributed to the elevation in sales. Lastly, Boston’s ability to sell alcohol through grocery outlets filled the void while pubs and clubs remained in chains.
Could Boston Beer be the future captain of light beer?
While our liquor taste buds might change, alcohol remains an inherent part of life. Consumers these days, especially millennials (21-35 today), are becoming increasingly more health-conscious, causing a shift in the beer industry. The growing trend is beers with lower alcohol content like hard seltzer. Similarities are also seen in the revolutionary introduction of light beer during the 70s. While the emerging market is slowly taking off, Boston is at the forefront of our desires. Ultimately, making the company a contender for the throne.
Does YIG see value in a Boston Beer investment?
Before I begin, I am obliged to remind our viewers that this is not financial advice but rather financial commentary from extensive research in the field
Short answer: A long term investment seems to hold the most value (opinion, not advice).
Considering Boston Beer jumped from the $650 mark to $800, I would say SAM is overbought (opinion not advice). Expecting Boston to gap up higher based on pure momentum could be greed trying to infiltrate your portfolio. Thus, investing in call options might not be the smartest investment. However, the low probability of short term gains is not a bad thing. Quite the opposite. Boston has significant upside potential in the long run for three reasons.
First, the Boston Beer satisfies the more health-conscious drinking trend, ultimately signalling SAM’s longevity. Considering the hard seltzer market is still in its infancy, Boston’s marketshare should only rise from here. Second Boston already holds a reputable name in the industry with its Angry Orchard Crisp Apple and Samuel Adams Boston Lager brands. According to CEO David Burwick these established brands grew by double digits in recent months. Third, the leadership knows how to navigate the company through a pandemic. For example, the management was relentless in selling its hard seltzer beers in off-premise locations, including grocery stores, and bottle shops while restaurants and bars were closed. The management ensured that their suppliers in brewers and employees all had the necessary temperature checks, safety gear, screening, masks, social distancing, supplied hotel rooms, and even assisted their employee’s childcare payments.
Overall, the strong leadership, megatrend of conscious health drinking, and their existing branded beers make Boston a potentially successful long-term investment (opinion not advice).
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The information above is not financial advice. Youth Investment Group has no liability for personal financial interests or investment decisions. You should make your own investment decisions based upon your own research and what you believe is best for you.
Written by Patrick McLoughlin, Senior Manager of YIG.