Why Boston’s beer stock lost some of its buzz

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Jhe beer industry is nothing if not a marketing machine. In this clip from “3 Minute Stocks Updates” on Motley Fool Live, recorded on January 5, Motley Fool contributor Toby Bordelon explains why he isn’t giving up hope for the future of boston beer (NYSE: SAM) despite a sharp decline in equities and a disappointing earnings report.


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Toby Bordelon: Let’s talk about Boston Beer, a company whose products you don’t necessarily want to combine with either You’re here (NASDAQ: TSLA) Where Lemonade (NYSE: LMND). Although maybe Tesla, when they are fully self-driving.

Brian Feroldi: It’s in the wild. I can’t wait for this to happen in my car.

Bordeaux: It could be one thing. Let’s talk about Boston Beer. They had a tough time at the end of last year. They had a revenue report in October. To say it was not well received would be an understatement. The stock fell above 50% after the earnings report. The big lesson here is that American companies can see their stocks cut in half when things go wrong. It’s not just something we say for fun. It’s a real thing and it can happen, so you have to prepare for it. It’s not all bad news. If you go back three years, the stock is still beating the market. That’s not very comforting to people who bought the stock at the high, but I think the bigger point is just the company beating the market in the medium to short term here. I think the problem they really had, their stock went down because seltzer sales were slowing down. They even had to get rid of some of their inventory that they couldn’t sell, which isn’t great. That was the big problem with the winnings. But that’s not unique to Boston Beer. Constellation Brands (NYSE: STZ) said on their conference call that their plans to double seltzer production were a bit overzealous. They back away from it. Molson Coors (NYSE: TAP) discontinued the Coors Light seltzer brand after less than a year in the United States. I think the biggest issue here is that everyone got excited about hard seltzer as a category, i.e. investors, producers, consumers, maybe even. Now the excitement has dissipated and people are feeling the pain. Boston Beer held a 25% market share in 2020 in the hard seltzer market. They were the leader. They feel more pain. This is what is happening. Good news. Revenue growth was strong before that. Even before, when Seltzer took off, they steadily increased what they had before that. The brands they own are still strong and popular. Seltzers are not going away and they are still the market leader. This is a good thing.

I think a takeaway is that evaluation is important. Strong companies can see their storage tank, so you should be aware of that. You don’t have to be super focused on the evaluation, but you do need to be aware of it and pay attention to it. They are still innovating interesting things. Cannabis drinks are in development. Ready-to-drink alcoholic beverages are under development. They recently released a space beer. It’s called Spacecraft IPA made with hops that circles the earth in the SpaceX Dragon capsule. Now, is this a marketing gimmick? Yes. Absoutely. It’s a marketing gimmick. But the beer industry is nothing if not a marketing machine. I think it shows that Boston Beer can still come up with ideas with the best of them and they can keep their brand fresh and relevant. It’s still a solid business, I think. The stock is up from November lows. I’ll keep an eye out for the next earnings report coming out soon, see if it gets back on track. But sure it’s a bump in the road with the seltzer, but I think we still have some nice growth ahead of us looking forward to it.

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Brian Feroldi owns Boston Beer and Tesla. Toby Bordelon owns Boston Beer and Lemonade, Inc. and has the following options: Long January 2022, $80 on Molson Coors Beverage Company and Short March 2022, $30 on Lemonade, Inc. The Motley Fool owns and recommends Constellation Brands, Lemonade, Inc., and Tesla. The Motley Fool recommends Boston Beer. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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