​A Trio of Intriguing Emerging Growth Craft Brew Stocks

Joel Anderson  |

I remember my father speaking fondly of his memory of drinking Coors (TAP) while he was attending college in Texas. At a time when your options outside of Budweiser (BUD) and Miller (SBMRY) were virtually nonexistent, even a moderately better beer was something to celebrate.

Today? Please, I’m pretty sure my father hasn’t given Coors a second thought. We were lucky enough to live in Michigan where some of the best craft brewing in the world takes place, with brands like the Bells Brewery and Founders. Today, with an array of options for dark, hoppy ales that are full of flavor, light-drinking German-style pilsners just aren’t on the menu. In fact, based on the beers my dad loves the most now, I feel like they never would have been if he had other options back in the day.

The United States is a nation of beer drinkers. That’s way less true today than it was 50 years ago, but it remains the case. Behind that is the revolution in brewing that’s taken place over the last two decades. Today’s beer drinkers are showing an appreciation for variety and quality that no one would have predicted. And that change has created an enormous economic opportunity.

The rapid pace of change behind the rise of craft brewing in the United States has meant the creation of thousands of new brews. However, for the emerging growth investor, looking for a way to capitalize on the trend can sometimes feel inadequate.

Many of the most successful craft brewers end up getting snapped up by the major brewers, offering a decent play for an income stock but none of the potential for explosive growth that comes with smaller independents. Private equity firms have made a number of plays for smaller breweries as well, but that leaves anyone who isn’t an unaccredited investor on the outside looking in more often than not. And while Reg A+ and Title III crowdfunding both appear to be poised to become a major driver for the craft brewing industry in the coming years, those are still very new vehicles that are still in the earliest stages of market adoption.

However, for the individual investor, there are still some options for publicly-traded stocks that are specifically a play on craft brewers. A few are well into the micro- and nano-cap range and trade on the OTC Markets, presenting a range of significant risk factors, but they are still a simple way to take a shot at America’s increasingly diverse taste in beer.

Boston Beer Company (SAM)

Price: $158.19

Market Cap: $1.94 billion

Depending on when you read this, Boston Beer Company may actually have risen past the $2 billion market cap level that’s the generally accepted boundary for the definition of small cap. However, it was under that level at the time of writing and, given its status as being one of the first craft brew brands to get any sort of national attention, it feels like Sam Adams needs to be included.

Things have not been going so well for Boston Beer of late. The company’s value has been halved since peaking in late January of last year, and while the company has been on a five-year stretch of consistently improving revenue and earnings, things appear to have slowed significantly in the last 18 months, which has in turn boosted the company’s PEG to just shy of 4 and made the company at its current price a much less attractive buy. If anything, Boston Beer may be suffering from having been too successful in growing America’s interest in different types of beer. Despite acting as the bridge, the company’s offerings are now getting beaten on quality by the myriad different beers on the market.

That said, Boston Beer has expanded beyond its flagship brand, with Angry Orchard cider, Twisted Tea, and over 40 different beers offered by the company’s subsidiary the A&S Brewing Collaborative. If the company can make the transition into looking more like its larger neighbors, with a major flagship brand bolstered by a portfolio of different smaller offerings providing diversification, it could make for a new chapter for Boston Beer.

Craft Brew Alliance (BREW)

Price: $19.04

Market Cap: $355.28 million

Craft Brew Alliance is the company that markets and distributes some prominent, nationally-recognizable brands like Widmer, Kona, Redhook, Omission, and Square Mile cider. The company has a strong portfolio of brands to offer, and it appears to be on the upswing. While the company’s currently trading at a very high multiple, it’s also projecting continued gains in revenue and profits in the coming years.

Things really took off after the news hit in August that the company had closed a new deal with its long-term strategic partner Anheuser-Busch for continued distribution, and the stock is up big since then. Shares are up over 30% since the deal was announced, and the company has gained nearly 150% over the last 12 months.

You’re paying a high price for growth if you opt for a stock like Craft Brew, especially right in the middle of the upswing. That P/E is at 365 with a PEG of 14.6, so a ton of your potential is already priced in. That said, Craft Brew tends to get the blessing of analysts and appears to be one of the most stable emerging growth stocks for playing a huge growth industry.

Appalachian Mountain Brewery (HOPS)

Price: $2.14

Market Cap: $16.76 million

At under $20 million in market cap, you tend to get some pretty iffy stocks. Appalachian Mountain Brewery is certainly in that category. It’s very thinly traded with an average volume of just 9,000 shares a day, and the stock is down almost 45% over the last year. On the whole, there’s a lot of risk in looking at a company like this.

However, Appalachian Mountain has a lot to like, as well. The company is growing revenues rapidly, up 70% year-over-year in 2014 and then another 57.9% for 2015, and it has a wide variety of offerings, including Black Gold, Boone Creek, Long Leaf, and many more.

Appalachian is a very small company in an industry that’s growing very fast, and its rapid sales growth would seem to indicate that it’s capitalizing on the trend. If it can continue to grow at its current rate, it could wind up producing some big returns for investors that took a chance early.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not necessarily represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer.

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