Boston Beer stock has tumbled 60% in less than five months.
Joni Hanebutt/Dreamstime.com
The hard-seltzer market has lost its fizz—and so have shares of Boston Beer. With the stock now worth less than half what it was at its peak, it might be time to take a sip.
That might seem like the kind of idea someone who’s had too much beer might come up with. After all, the company’s stock, which peaked in April at $1,306.45, has tumbled 60% to a recent $527.25 in less than five months. The decline has been driven by the same thing that drove shares higher—hard seltzer. When sales were booming, so did Boston Beer’s stock (ticker: SAM). But now sales are slowing, the company has too much inventory, and growth is fading. On Wednesday, the company removed its earnings guidance of $18 to $22 a share for 2021, noting only that it would be lower.
But the response to the announcement was quite different than the one back in July, when Boston Beer lowered its guidance and warned about weakness in hard-seltzer sales. Then, it gapped down 23% and kept on falling. This time, the stock opened down 7.9%, but spent the rest of the day bouncing, finishing off 3.8% on what might arguably be worse news.
There are fundamental reasons to think Boston Beer can bounce, even with its hard-seltzer business not what it once was. Competition has certainly hurt, as has overproduction of the fizzy drink, but demand has been fairly consistent, writes Ivan Feinseth, chief market strategist at Tigress Financial Intelligence, and Boston Beer should benefit from its ability to offer more than just beer.
A less expensive Boston Beer could also become a takeover target, Feinseth explains. “While these trends may take several quarters to right themselves, I believe there is significant value in Boston Beer’s brand equity and production infrastructure that also make it an attractive takeover candidate as the distilled spirit and beer industry has gone through and will continue to go through consolidation,” he writes.
But as Feinseth implies, this is not a trade for the impatient. Guggenheim analyst Laurent Grandet argues the stock’s investor base will have to turn over, something that could take a while. The fact that management finally admitted the extent of the problem could help as well. “Ultimately, it should help the stock to stabilize and find its bottom,” he writes.
The stock now looks to have support near $500, around its June 2020 lows. If that level holds, buying the stock in the low $500s could turn out to be a smart bet—fizz or no fizz.
Write to Ben Levisohn at Ben.Levisohn@barrons.com