SAM – Buy SAM Stock Down 25% Before Q2 Earnings?

The Boston Beer Company, Inc. (SAM Free Report) has skyrocketed 475% in the past five years as Wall Street dove into the stock on the back of SAM’s growth within the booming hard seltzer market. The stock has tumbled since its Q1 release in April, as Wall Street sold overheated shares and questioned how much longer the seltzer craze will last.

Now let’s examine SAM ahead of its second quarter FY21 financial release on Thursday, July 22.

Hard Seltzer & Craft Beer

Boston Beer has been at the forefront of the American craft beer industry since the 1980s and its portfolio currently includes Samuel Adams, Dogfish Head Brewery, and other craft brands. SAM then launched Truly Hard Seltzer in 2016 and in doing so helped kickstart the biggest alcoholic beverage revolution since light beer.

Truly is one of two dominant players in the category at the moment, alongside White Claw—owned by Mike’s Hard Lemonade maker Mark Anthony Brands. Truly and hard seltzer’s massive expansion forced Anheuser-Busch InBev (BUD Free Report) , Molson Coors (TAP Free Report) , Constellation Brands (STZ Free Report) , and even Coca-Cola (KO Free Report) , under its Topo Chico brand, to enter the hard seltzer market.

Boston Beer’s revenue surged 15% in fiscal 2018, another 26% in FY19, and 39% last year. The last three years represented SAM’s strongest top-line growth since 2014.

In fact, Boston Beer had never posted 30% or stronger revenue growth since it went public in the late 1990s until 2020. And Truly “generated triple-digit volume growth in 2020 and grew its velocity and its market share sequentially despite other national, regional and local hard seltzer brands entering the category.”

Zacks Investment Research
Image Source: Zacks Investment Research

Other Fundamentals

Boston Beer posted 65% sales growth in Q1, while its adjusted earnings skyrocketed. Despite the continued growth, SAM shares plummeted and Wall Street analysts lowered their EPS projections, as investors thought about the eventual slowdown of the seltzer market.

The stock has now fallen roughly 27% since right before its April 22 earnings release. SAM has slipped below both its 50-day and 200-day moving averages along the way. The stock did pop nearly 3% Monday amid the broader market pullback from its records to close regular hours at $951.50 a share.

Boston Beer currently sits below neutral RSI levels (50) at 42. And it’s trading over 40% below its year-long high and 20% under its median at 35X forward 12-month earnings. These factors could potentially provide Boston Beer shares runway if it impresses Wall Street Thursday.

Zacks estimates call for SAM’s first quarter revenue to climb another 43%, with adjusted EPS projected to pop 49%. Peeking ahead, Boston Beer’s FY21 revenue is projected to surge 39% from $1.74 billion to $2.41 and then climb 19% higher to reach $2.87 billion in 2022—it pulled in $996 million in FY18. At the bottom end, SAM’s adjusted earnings are projected to soar 60% and 21%, respectively.

Investors should also know that Boston Beer is a well-run and financially solid company, with no debt on its books at the moment. Plus, reports project the global hard seltzer market could reach $14.5 billion by 2027, expanding at a CAGR of over 16%. And the company has launched Truly Lemonade Hard Seltzer and Iced Tea Hard Seltzer. These efforts are part of Truly’s continued expansion within a highly competitive area.

Bottom Line

Boston Beer’s downward earnings revisions help it land a Zacks Rank #5 (Strong Sell) right now and it sits below key technical levels heading into its Q2 release. Investors should also note that SAM’s short interest was around 10.5%, as of the last reporting. Therefore, investors likely want to stay away from Boston Beer for now, or until it shows signs of a comeback.