The heat of summer prompts most to pursue some kind of relief. Cold drinks, like those provided by The Boston Beer Company (SAM), prove a popular option. Yet, based on the latest earnings reports, folks are going elsewhere to find their summertime coolant of choice. Boston Beer was down 9.6% in premarket earlier today. However, the stock recovered and is now up 3.3%.
Boston Beer faltered on earnings, initially sending the company downward. It posted earnings of $4.31 per share, which failed to meet several metrics. It failed against the Zacks consensus, which called for $5.29 per share. It’s also down against last year’s figure of $4.72 per share. In addition, the company posted $616.24 million in revenue, 4.77% short of the Zacks consensus.
Previously, I was neutral on Boston Beer. The company posted an actual loss with its April figures. Now it’s posted solid gains, but gains that were well below expectations.
Throw in declining demand for some of its key products, and that adds up to one thing: disaster. I’m now bearish on Boston Beer because its demand figures just aren’t holding up, and with cold drinks season about to run out, so too will upcoming demand figures.
The last 12 months for Boston Beer shares featured a steady decline that has only recently started to turn around. In July 2022, the company cleared the $700 per share mark. However, this didn’t last. Over the course of the last year, the company has lost better than half its value.
Wall Street’s Take on SAM Stock
Turning to Wall Street, Boston Beer has a Hold consensus rating. That’s based on two Buys, eight Holds, and three Sells assigned in the past three months. The average Boston Beer price target of $326.33 implies -6.5% upside potential.
Analyst price targets range from a low of $250 per share to a high of $385 per share.
Investor Sentiment is Split on the Company’s Future
The calamitous drop in Boston Beer share prices has only gone so far in hurting investor sentiment. Currently, Boston Beer has a Smart Score of 5 out of 10 on TipRanks, which puts it as close to purely neutral as possible.
The company has an equal chance of outperforming or lagging the broader market. Meanwhile, several key metrics of investor sentiment are mixed as far as future potential goes.
Hedge fund involvement, based on the TipRanks 13-F Tracker, seems to see a bright side of sorts. Hedge funds increased their positions by 28,700 shares in the last quarter. That marks the second consecutive increase since September 2021. The numbers for the April-June quarter have yet to emerge, however, and that may tell a different story altogether.
Conversely, insider trading is on a downward cant. Over the last three months, insiders have done nothing but sell Boston Beer stock. The last purchase emerged in February 2022. A look at the full-year figures doesn’t do much to help Boston Beer’s confidence, either. Sell transactions outstripped Buy transactions by 29 to 13.
Meanwhile, retail investors—at least, those who hold portfolios on TipRanks—are increasingly turning their backs on Boston Beer as well. The number of TipRanks portfolios that held Boston Beer shares has dropped 0.3% over the last seven days. It’s even worse over the last 30 days, as that figure dropped 2.2%.
Finally, there’s the matter of Boston Beer’s dividend history. There is none. The company is clearly focused on growing its share price – or, perhaps, recovering its share price to the levels seen this time last year.
A Declining Value Proposition
Increasingly, there’s less and less here for Boston Beer investors. Even a look at its share price suggests there’s not much more room to run. The company offers 6.5% downside potential, according to analysts. That’s not exactly a bell-ringer as a growth stock.
Sure, its highest price target of $385 suggests the company could see some decent gains. The year-ago figures don’t hurt matters either. However, the more reasonable price targets all suggest that Boston Beer has popped its cork, figuratively speaking.
Worse yet, the best part of the year for Boston Beer is about to fade away. It’s late July. While summer will have its sway for another six weeks at least — quite possibly two months — the time for beach parties, cookouts, and other times tailor-made for Boston Beer products are coming to a close.
Sure, demand won’t completely die off when the leaves change colors and the nights get a bit nippy, but we must all admit that summertime is running out of steam.
Just to top it off, it’s clear that some Boston Beer products are faltering already, even when demand should be at its most brisk. Sales did notch up 2.2% in the quarter, representing the first growth seen in three quarters; the last two quarters both featured declines. However, depletion volumes for Truly were down 7%, and this came at a time when depletion volumes for every other SAM brand were up 14%.
Raw material costs and higher return rates are also giving the company problems. They’re making headway with price increases, but that only goes so far.
That may be one of the biggest problems ahead for Boston Beer. Hiking prices into a season of declining demand won’t do it any favors when next quarter’s figures roll around.
To the company’s credit, it’s taking steps to address this. A reformulation is in the works that may improve acceptance rates. The company is also planning to put its focus back on its core brands, which may help. Still, these are uncertain steps that may ultimately never deliver results.
Conclusion: With Fading Product Demand, SAM Stock is Unattractive
Give Boston Beer some credit. It sees its problems coming and is working to turn things around. The problem is that there’s likely too much inertia in the market for the company to push the meter much. Peak demand season is fading away. Several of its products are faltering in demand before the key season is out of the picture.
When the company can’t even keep demand for cold drinks going into the best season around for cold drinks, summer, that only makes a bad situation worse.
I’m bearish on Boston Beer. If the company has any hope of getting back in the $700s per share, then this would be the time to back the truck up and fill it with shares, as it has come down quite a bit.
However, the odds of bottling that lightning once more are a forlorn hope at best. Boston Beer’s best days now seem behind it, and its odds of pulling out a winner from what it currently has on hand are too long a shot to easily support.
