Shares of craft brewer Boston Beer Company Inc (NYSE: SAM) jumped 18.7% in July, according to data provided by S&P Global Market Intelligence, after reporting earnings from the second quarter of 2017.
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Second-quarter revenue was up 1%, to $247.9 million, and net income rose 9.4%, to $29.1 million, or $2.35 per share. A big reason the stock spiked is that analysts were only expecting $1.41 per share in earnings. On top of the earnings beat, management increased the bottom end of full-year earnings guidance from $4.20 to $5.00 with the top end staying at $6.20 per share.
While results were strong, the trend is actually toward flattening revenue and volumes because local craft brewers are taking market share. Boston Beer helped create a beer trend that's so successful, it can't take much more market share without beating up on smaller brewers, who are the upstarts Boston Beer used to be.
Financially, it's positive to see Boston Beer reporting strong earnings on the bottom line, but the path to further growth will become more difficult. And with shares trading at 25 times the top end of full-year earnings guidance, the stock is looking more risky than it was a month ago.
I like the company long term, but its valuation is extremely high given the growth rate, which I don't see changing substantially going forward.
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