Company ProfileÂ (excerpt from Reuters): The Boston Beer Company, Inc., incorporated on August 17, 1995, is a craft brewer in the United States. The Company is engaged in the business of producing and selling alcohol beverages primarily in the domestic market and in selected international markets. The Company operates through two segments: Boston Beer Company segment, and A&S Brewing Collaborative segment. The Boston Beer Company segment comprises of the Company’s Samuel Adams, Twisted Tea, Angry Orchard and Truly Spiked & Sparkling brands. The A&S Brewing Collaborative segment comprises of The Traveler Beer Company, Coney Island Brewing Company, Angel City Brewing Company and Concrete Beach Brewing Company. Both segments sell low alcohol beverages.
Downloadable PDF version of this valuation:
Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?
|Defensive Investor; must pass 6 out of the following 7 tests.|
|1. Adequate Size of the Enterprise||Market Cap > $2Bil||$3,519,063,712||Pass|
|2. Sufficiently Strong Financial Condition||Current Ratio > 2||1.75||Fail|
|3. Earnings Stability||Positive EPS for 10 years prior||Pass|
|4. Dividend Record||Dividend Payments for 10 years prior||Fail|
|5. Earnings Growth||Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end||106.76%||Pass|
|6. Moderate PEmg Ratio||PEmg < 20||42.01||Fail|
|7. Moderate Price to Assets||PB Ratio < 2.5 OR PB*PEmg < 50||8.20||Fail|
|Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.|
|1. Sufficiently Strong Financial Condition||Current Ratio > 1.5||1.75||Pass|
|2. Sufficiently Strong Financial Condition||Debt to NCA < 1.1||0.00||Pass|
|3. Earnings Stability||Positive EPS for 5 years prior||Pass|
|4. Dividend Record||Currently Pays Dividend||Fail|
|5. Earnings Growth||EPSmg greater than 5 years ago||Pass|
Stage 2: Determination of Intrinsic Value
|MG Growth Estimate||5.14%|
|MG Value based on 3% Growth||$104.47|
|MG Value based on 0% Growth||$61.24|
|Market Implied Growth Rate||16.75%|
|% of Intrinsic Value||223.63%|
Boston Beer Company Inc is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, poor dividend history, and the high PEmg and PB ratios. The Enterprising Investor is only concerned with the lack of dividends. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.
As for a valuation, the company appears to be Overvalued after growing its EPSmg (normalized earnings) from $5.37 in 2014 to an estimated $7.2 for 2018. This level of demonstrated earnings growth does not support the market’s implied estimate of 16.75% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.
At the time of valuation, further research into Boston Beer Company Inc revealed the company was trading above its Graham Number of $74.84. The company does not pay a dividend. Its PEmg (price over earnings per share – ModernGraham) was 42.01, which was above the industry average of 24.56. Finally, the company was trading above its Net Current Asset Value (NCAV) of $2.7.
Boston Beer Company Inc receives an average overall rating in the ModernGraham grading system, scoring a C-.
Stage 3: Information for Further Research
|Net Current Asset Value (NCAV)||$2.70|
|Number of Consecutive Years of Dividend Growth||0|
|ModernGraham tagged articles||Morningstar|
|Google Finance||MSN Money|
|Yahoo Finance||Seeking Alpha|
Most Recent Balance Sheet Figures
|Balance Sheet Information||3/1/2018|
|Total Current Assets||$174,903,000|
|Total Current Liabilities||$99,923,000|
|Shares Outstanding (Diluted Average)||11,831,000|
Earnings Per Share History
|Next Fiscal Year Estimate||$6.83|
Earnings Per Share – ModernGraham History
|Next Fiscal Year Estimate||$7.20|
Other ModernGraham posts about the company
|8 Best Stocks for Value Investors of the Week â€“ 12/10/16|
|Boston Beer Company Inc Valuation â€“ Initial Coverage $SAM|
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The author did not hold aÂ position in any company mentioned in this articleÂ at the time of publication and had no intention of changing that position within the next 72 hours. Â See my current holdings here. Â This article is not investment advice; any reader should speak to aÂ registeredÂ investment adviser prior to making any investment decisions. Â ModernGraham is not affiliated with the company in any manner. Â Please be sure to review our detailed disclaimer.