Buy, Drink, Sell: Is Your Favorite Beer Worth Investing In?
T. M. is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Beer is king in America, and beer stocks reflect it. While microbreweries and regional producers have taken an increasing share of sales over the last three decades, national- and global-scale producers like the Molson Coors Brewing Company (NYSE: TAP) and Anheuser-Busch InBev (NYSE: BUD) have maintained a high share price. Nevertheless, smaller, leaner companies have made significant inroads into the market; perhaps the most successful of these is the Boston Beer Company (NYSE: SAM), well known for their Sam Adams brand. For all three, the trend has been a rise in stock price; is this set to continue, or are they over-priced?
Low on Tap
With a $7.79 billion market cap, Molson is a big, relatively stable company. Despite a YoY 36% drop in sales in 2009, TAP has increased its sales by an average of more than 7% YoY since. Over the same period, despite annual June spikes, receivables have seen a steep decline as a percentage of current assets. With a regularly (though recently, not-so-regularly) increasing dividend yield of 3%, it seems like a steady stock to hold onto. And yet...
Payables have skyrocketed, long term debt has jumped nearly 50% from March to September, and their current ratio of 0.6 suggests a company that is operating without regard for its long-term health. As microbreweries continue to compete with success in local markets, can TAP keep up?
The Constitutional Monarch of Beers
Of course, Anheuser-Busch InBev, of Budweiser fame, is even larger, pricier, and more successful than Molson. BUD has managed to increase their sales by a YoY average of over 20% the past four years, all the more impressive considering their global-and-growing market capitalization of $140 billion; it is the sign of a great company when it can take a market seemingly saturated by their product and find yet more ways to expand. Both net income and net cash are up by leaps and bounds over the same period; profits-wise, there are no complaints about BUD. With a dividend of 1.5%, individuals looking to retire might consider this an ideal stock.
But for the younger crowd, we often want to know if this is a stock that will grow after we've chosen to invest. With a forward PEG of 1.72, analysts are convinced of BUD's overvaluation. BUD's book value per share -- i.e., a measure of how under- or overvalued the stock is in relation to its actual assets & liabilities -- registers at 29% of its stock price, and suggests they may be right.
Setting Brushfires of Hops in the Mouths of Men
Boston Beer is considerably smaller than either TAP or BUD, with a market capitalization of only (ha!) $1.5 billion. A 25.6% difference between the stock's 52-week high and low suggests a more unstable stock, though not terribly so; its lack of a dividend seems to seal it for investors interested in a more long-term investment or an addition to the retiree's portfolio.
On the other hand, SAM is priced at well over $100/share, and the forward PEG of 1.4 means that for the near future, the stock is priced fairly -- if not overpriced, despite the high it reached in June/July. Does this mean SAM is neither a long-term nor a growth stock?
That depends on their ability to continue surpassing Wall Street's expectations. The company remains a solid pick overall. Over the past year, the ratio of cost of sales to sales themselves have on average risen barely 1%, while sales have risen an average of 7% in the same period -- the company is continuing to bring in more cash while growing more efficient (and profitable! hurray!) in the process. Receivables continue to climb, but they do so as a consequence of concomitantly increasing sales. Business, in other words, is good. If you want to invest in a solid company with a sound product, perhaps this is for you. Sadly, the frenzy may be over for now.
The Joys of Investing
Beer differs from much of what you can invest in on the market. The products are easily available and assessable for the common man, whereas testing the energy efficiency of a high-tech battery or judging the quality of health care at a facility proves a bit more... complex. To that end, before making any decisions about these stocks, please... go out and try a few! In the course of your merriment, you may end up finding an altogether different brewer that you enjoy far more than the aforementioned... and that's an experience that can lead to truly satisfying investments, when backed up by sound research and a knowledge of the fundamentals of finance.
As for me, the big dogs of beer produce lackluster products, and Sam Adams is the biggest small brewer around. They offer quality products at a bigger market share than any microbrewery; the question is, can they maintain their growth? Having soared past quarterly earnings expectations in the past, they may well do so. After all, if Budweiser can still find new markets, anything is possible.
tmloyd has no positions in the stocks mentioned above. The Motley Fool owns shares of Boston Beer. Motley Fool newsletter services recommend Boston Beer and Molson Coors Brewing Company. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!