The old investing axiom that "sin" stocks are recession proof, proved itself on Tuesday as Boston Beer Company (NYSE:SAM), the producer of the world famous Sam Adams brand, beat analyst earnings estimates by 31% for the fourth quarter of 2007.

The Numbers Don't Lie My Friend
Boston Beer Company (BBC) posted record setting fourth-quarter revenue of $92 million, crushing the fourth quarter of 2006 by almost 26%. Two catalysts drove the huge spike in revenue: A 19.5% shipment volume increase and a 5.2% increase in net revenue per barrel of beer. Fourth quarter earnings per share jumped 270% from the same quarter in 2006 and the company saw a 19.7% total increase in net revenue for 2007.

BBC is a small cap stock, but that doesn't mean it can't compete with the big boys. The 2007 numbers are amazing and BBC is setting itself up for success. Since 2005, this company has increase revenue by an average of $50 million per year. This is a solid growth play and with ratios such as its price-to-book ratio of 5.28 compared to the industry's 6.16, I don't see the stock going anywhere but up. In addition, BBC's gross margin more than doubles the industry average! (To discover how to keep score of companies by analyzing their financials, see What You Need To Know About Financial Statements and Ratio Analysis Tutorial.)

The November Misstep
On November 7, 2007, BBC stock dropped almost 30% in one day. All over a 20-cent-per-share revision of its fiscal 2007 earnings expectation: Panic selling in its purest form. (To learn more, check out Panic Selling - Capitulation Or Crash?)

During 2007 BBC decided to purchase competitors and expand its operations - a totally normal move for a small cap company making boatloads of money. One of the competitors by the name of Freetown Brewery wound up costing more than expected - thus causing BBC management to lower earnings expectations. Did this correction in earnings warrant a 30% drop in the stock price? Well, it doesn't look like it. Since the fourth quarter 2007 earnings announcement on Tuesday the stock price is up about 20%.

Many analysts have overlooked Boston Beer Company as just another retail stock that will be subject to systematic risk. Well, as we can see they may be wrong.

The Bottom Line
It is clear from the numbers that the Boston Beer Company is a healthy, growing, stable small-cap stock. Since alcohol is in the retail realm of the economy, analysts seemed to think that sales would somehow slow down due to the looming recession and stagnant retail sector. What a lot of these analysts forget is that "sin" stocks rally in a slow or downward trending market. People drink when they are happy and people drink when they are sad. It's doubtful an ugly stock market is going to stop the youth of today from going out and having a good time - even if it means that they pay their tab with a credit card.

Boston Beer Company is a great stock and a perfect mid-level risk investment while we weather the current market decline.

To find out what you can do when the market starts to decline, read our article Recession-Proof Your Portfolio.