Summary
- Boston Beer Company’s brand “Truly” is the second largest hard seltzer brand by market share.
- The company’s hard seltzer growth estimation led to a significant overproduction of the inventory.
- Slower than expected growth resulted in obsolete inventory write-off of over $100 million (17% of total revenue).
- A conservative DCF valuation shows that SAM’s share price has fallen below intrinsic value.
Thesis
The Boston Beer Company (SAM) is a prominent name in the alcoholic beverages industry and boasts several flagship brands and products. This article, however, will be predominantly focused on the Hard Seltzer category of its products under the ‘Truly’ brand name. This is because most of the share price volatility relating to SAM during the year is revolving around a major inventory write-off pertaining to a gross overestimation of over $100 million by the management with regard to the sale of Truly Hard Seltzer.
The product is still showing growth in the market but at a slower pace than expected and the management has duly revised their plans & strategies for the upcoming year, taking new figures into account. The overall impact of the write-off is one-off in nature and doesn’t necessarily reflect poorly upon the fundamental financial strength of the company or gross incompetence by the management to indicate a future decline in the company’s future value.
The sell-off may have been an overreaction given the circumstances and a lawsuit, and upon release of further, more promising figures, SAM could work out as a contrarian play.
Company Overview
The Boston Beer Company is one of the largest craft beer companies in the world that markets and sells its products internationally to wholesalers, importers, and other parties. Their brand library includes Angry Orchard Hard Cider, Twisted Tea, Truly Hard Seltzer, Wild Leaf Hard Tea, Tura Alcoholic Kombucha, and other craft beer brands such as Angel City Brewery, Coney Island Brewing, Concrete Beach Brewery, Dogfish Head, and Craft Brewery. The company has a total market share of approximately 8.56 % with a market cap of $5.7 billion.
