Stock Decline Justified
Boston Beer Company (NYSE:SAM), known for its brand Sam Adams, is the second largest craft beer company in the US, but has been struggling for growth in a market that is becoming increasingly overcrowded by smaller brewers. It's been rough for investors. In Jan 2015 SAM reached an all-time high of $315 per share. Since then the stock has justifiably fallen by more than 50% to its current price of $156 per share. In their 2014 fiscal year they achieved an impressive growth of more than 20%. Investors expected similar growth in the future and for Boston Beer Company to be leading the industry in growth. This led to the stock's valuation to foam up to PE ratios of 35-40. However, it soon became more apparent that SAM was grossly overvalued as its growth rate quickly decelerated and even went in the red this year. Just as with a bad pour, the foam started to fizzle down and investors realized there wasn't nearly as much beer in the glass as they thought.
Difficulty in Building Customer Loyalty
In their most recent quarter SAM actually reported a year over year revenue decrease of 5%. Jim Koch, Founder and Chairman of the company, blamed the decrease on "increased competition and continued growth of the drinker interest in trying new styles." Jim Koch's statement summarizes the primary challenge the company faces. The primary consumers within the craft beer industry are open minded, experimental drinkers who prefer buying beers from microbreweries than from corporate beer companies, even if that company pales in comparison with the large "American Lager" beer companies.
