The beer industry is nothing if not a marketing machine. In this clip from "3 Minute Stocks Updates" on Motley Fool Live, recorded on Jan. 5, Motley Fool contributor Toby Bordelon discusses why he's not giving up hope for the future of Boston Beer (SAM -2.54%) despite a steep stock drop and disappointing earnings report.
Toby Bordelon: Let's talk about Boston Beer, a company whose products you do not necessarily want to combine with either Tesla (TSLA -5.00%) or Lemonade (LMND -6.09%). Although maybe Tesla, when they get full self-driving out there.
Brian Feroldi: It's in the wild. Can't wait 'til it comes to my car.
Bordelon: It could be a thing. Let's talk about Boston Beer. They had a rough go of it late last year. They had an earnings report in October. Saying it was not well-received would be an understatement. Stock tanked above 50% after the earnings report. Big lesson here is U.S. companies can see their stock get cut in half when things go wrong. It's not just something we say for the heck of it. It's a real thing and it can happen so you need to be prepared for that. It's not all bad news though. If you go back three years, the stock's actually still beating the market. Now that's not very comforting for people who bought the stock at the high but I think the bigger point is just the market-beating company over a medium, arguably even short-term, time frame here. I think the issue really that they had, their stock went down because seltzer sales were slowing. They even had to get rid of some of their inventory they couldn't sell which is not great. That was the big issue with earnings. But it's not unique to Boston Beer. Constellation Brands (STZ -1.95%) said in their conference call that their plans to double seltzer production was a little overzealous. They're backing off of that. Molson Coors (TAP -1.16%) discontinued the Coors Light seltzer brand after less than a year in the U.S. I think the bigger issue here is that everyone got super excited about hard seltzer as a category i.e., investors, producers, consumers, perhaps even. Now the excitement has worn off and people are feeling the pain. Boston Beer had a 25% market share in 2020 in the hard seltzer market. They were the leader. They are feeling more of the pain. That's what's going on. Good news. Revenue growth was strong leading up to that. Even before, when seltzer took off, they've been steadily growing what they had before that. The brands they own are still strong and popular. Seltzers aren't going away and they're still the market leader. That's a good thing.
I think a takeaway is that valuation does matter. Solid businesses can see their stock tank so you've got to be aware that. You got to be not super-focused on valuation necessarily but you have to be aware of it and pay attention to it. They are still innovating some interesting things. Cannabis drinks are in development. Ready-to-drink hard liquor beverages are in development. They recently put out a space beer. It's called Spacecraft IPA made with hops that circle the earth in the SpaceX Dragon capsule. Now, is that a marketing gimmick? Yes. Absolutely. That's a marketing gimmick. But the beer industry is nothing if not a marketing machine. I think this shows that Boston Beer can actually still come up with ideas with the best of them and they can keep their brand fresh and relevant. It's still a solid company, I think. Stock is up from the November lows. Going to keep an eye on the next earnings report coming out soon, see if it comes back on track. But it's a bump in the road for sure with the seltzer, but I think we still got some nice growth ahead of us looking forward.
