Sam in a Can

Sometimes, knowing which stocks to avoidis as pocket-pleasing as knowing which stocks to buy.

I think widely-adored Sam Adams maker, Boston Beer Co. (NYSE: SAM), is one stock you should pass up. Grab a six pack, fine. But don’t buy this stock.

Over the past 12 months, major brewers – Molson Coors Brewing Company (NYSE: TAP), Anheuser Busch InBev (NYSE: BUD) and Boston Beer Co. – have more or less moved in tandem. They’ve made gains of 30%, 36% and 40%, respectively.

But if you look at their stock performance over the past four years, Boston Beer’s gains have completed eclipsed the others’… +427%, versus 144% (BUD) and just 16% (TAP).

And this just isn’t sustainable.

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The problem with SAM’s astronomical price increase, especially relative to its competitors, is that its earnings haven’t kept pace.

Compared to BUD and TAP, SAM is overvalued by every measure imaginable. It’s Price-to-Earnings (P/E) ratio is the highest of the three… and so is its Price-to-Book Value ratio… and its Price-to-Sales ratio… and its Price-to-Cash ratio.

Of course, overvaluations can last for some time. But, it appears investors are already beginning to turn their backs on Sam Adams. Short Interest – the percentage of the company’s shares that are sold short – is massive at 19% (BUD’s is just 0.25%). And both insider ownership (think Sam Adams executives) and institutional ownership (think pension funds) have been selling shares and reducing positions recently.

Oh… and the company recently announced it would start selling its beer in cans… “to keep up with the competition.” A move of desperation? Who knows…

Either way… steer clear of this overpriced suds maker until its stock price realigns with reality – closer to $120 a share, or 20% below current price. But by all means… go grab a six pack of bottles while you still can!

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Categories: Markets

About Author

Adam O'Dell has one purpose in mind: to find and bring to subscribers investment opportunities that return the maximum profit with the minimum risk. Adam has worked as a Prop Trader for a spot Forex firm. While there, he learned the fundamentals of trading in the world’s largest market. He excelled at trading the volatile currency markets by seeking out low-risk entry points for trades with high profit potential. An MBA graduate and Affiliate Member of the Market Technicians Association, Adam is a lifelong student of the markets. He is editor of our hugely successful trading service, Cycle 9 Alert.