Why Boston Beer Stock Gained 16% in March

MarketsMotley Fool

What happened

Craft beer giant Boston Beer (NYSE: SAM) gained 16% last month, according to data provided by S&P Global Market Intelligence, compared to a nearly 3% decline in the broader market.

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The rally contributed to solid gains for shareholders over the past year, yet the stock is well below all-time highs it set back in early 2015 of over $300 per share.

So what

March's increase came as investors debated whether the company was on the brink of a building recovery. Depletions, a measure of beer consumption, fell 5% in fiscal 2017 to push sales down for the second straight year.

However, that rate improved to just a 2% loss in the year's final quarter, leading management to forecast a return to modestly positive depletions in 2018.

Now what

Incoming CEO Dave Burwick and his team are hoping that innovative launches like Sam '76 and a new flavor in the Angry Orchard franchise will help counteract difficult industry trends, including the proliferation of small craft breweries and a shift in demand toward premium imported beers.

That's possible, but what's easier to predict is the fact that cost cuts should power a second straight boost in profitability as gross margin improves to around 53% of sales this year from 51% in 2016.

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Demitrios Kalogeropoulos owns shares of Boston Beer. The Motley Fool owns shares of and recommends Boston Beer. The Motley Fool has a disclosure policy.