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Stock Strategist

Boston Beer's Valuation Too Foamy

The craft beer revolution continues, but we expect heightened competition to slow growth rates.

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U.S. consumers' appetite for craft beer has been insatiable over the past decade. Despite overall industry headwinds, the volume of craft beer sold in the United States has grown at a 12% compound annual growth rate, mitigating a 1.3% annual fall in noncraft liters. The biggest losers in this craft revolution have been the major domestic brewers, particularly Anheuser-Busch InBev (BUD) and MillerCoors (SBMRY)/(TAP), which have seen sales of traditional mainstream and light beers fall precipitously (nearly 1.7% annually over the past decade) as consumer preferences have dramatically shifted.

Conversely,  Boston Beer (SAM)--maker of the largest craft beer, Samuel Adams--has enjoyed a 12.5% volume CAGR over the same period and an even stronger 15.3% revenue CAGR as a result of consumers' willingness to pay up for nonmainstream brands, both in beer and alternative flavors (such as the company's 2011 relaunch into the fast-growing hard cider business with Angry Orchard). Shareholders have benefited as well; Boston Beer's stock has increased at a nearly 30% rate annually since early 2004, compared with a 6.5% yearly gain in the S&P 500.

Adam Fleck does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.