Boston Beer Stock Down 8% Today – Time to Buy SAM Stock?

The price of Boston Beer stock is going down more than 8% in pre-market stock trading action this morning following the release of a downbeat earnings report that included a withdrawal of the firm’s full-year guidance for its earnings per share amid weakness in the hard seltzer market.

The Boston-based brewery reported revenues of $603 million resulting in a 33.3% increase compared to the same period a year ago but missing analysts’ consensus forecast for the period by more than 8%.

Moreover, the company reported lower-than-expected diluted earnings per share of $4.75 as a result of a significant drop in the demand for Truly, its flagship hard seltzer.

Due to this increased weakness in this particular segment of the market, the management also announced that its full-year earnings should fall below its initial forecast of $18 to $22 per share while they abstained to renew their forecasts citing an uncertain outlook.

“The hard seltzer category and overall beer industry were softer than we had anticipated”, stated Jim Koch, the Chairman and Founder of Boston Beer.

Moreover, Dave Burwick, the company’s Chief Executive, stated: “We overestimated the growth of the hard seltzer category in the second quarter and the demand for Truly, which negatively impacted our volume and earnings for the quarter and our estimates for the remainder of the year”.

Moving forward, can this setback in the business result in an acceleration in the stock’s current downtrend or has the market priced in much of this weakness already? In the following article, I’ll discuss the latest price action and fundamentals of the company to outline plausible scenarios for the future.

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Boston Beer Stock – Technical Analysis

SAM stock has been on a downtrend since the stock hit an intraday all-time high of $1,350 per share back on 23 April this year. This sustained drop started to unfold only a day after Boston Beer published its financial results covering the first quarter of the 2021 fiscal year.

Despite the company reporting better-than-expected results, market participants appeared to have identified an upcoming slowdown in the demand for the company’s top products once the pandemic is over.

In this regard, it appears that as on-premise events once again become the usual place at which consumers drink alcoholic beverages, hard seltzers may take experience lower demand as the category is mostly associated with at-home gatherings.

Since hitting that peak, the price of Sam’s stock has dived as much as 61.3% while the price action is almost tagging a key support area found at the $500 level.

Perhaps interestingly, even though the Relative Strength Index (RSI) is neck-deep into oversold territory, the MACD has started to trend higher accompanied by steadily increasing positive histogram readings.

This divergence between the stock’s momentum readings and its bearish price action may indicate that a bottom might be around the corner.

Moreover, now that the extent of the impact that this deceleration in the demand for hard seltzers will have on the company’s financials is clearer, market participants may feel more confident about Boston’s outlook as the world keeps moving toward a post-pandemic scenario.

In this regard, determining if the valuation of the company, from a purely fundamental perspective, is attractive or not at the moment may help in identifying where a potential bottom may lie for Boston Beer stock.

Boston Beer Stock – Fundamental Analysis

Sales of the Boston Beer Company have been steadily increasing since 2018, moving from $995.6 million to $1.74 billion last year while the pandemic accelerated the company’s top-line growth rate significantly as hard seltzers were among the most demanded alcoholic beverage during confinements.

During the health emergency, reports from multiple sources indicated that hard seltzers were the top choice among consumers as they were considered a great indoor drink.

However, now that on-premise events are resuming, the demand for this product may progressively decline and this latest quarterly report highlights that possibility.

Moving forward, analysts have estimated that Boston Beer sales will keep growing but at a much slower pace compared to the 39% jump they experienced in 2020. On the other hand, these forecasts might be revised downwards now that the company has signaled that its initial expectations for the segment were a bit exaggerated.

Meanwhile, if earnings per share for the full 2021 fiscal year land at the lower bound of the management’s guidance for the year ($18), which is at the moment an optimistic scenario, the company’s P/E ratio based on this estimate would currently stand at 29.

Before the pandemic started, earnings per share of the brewery company were growing at a rate of around 6% per year, which is not an overly attractive number. If those slow growth rates come back amid a fading pandemic tailwind, chances are that the stock price may continue to dive until the firm’s future prospects are fully priced in.

Based on this assessment, even if the price of SAM shares bounces off the $500 level, the downtrend may continue in the following months on the back of slower-than-expected earnings growth in future years.

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