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.

Related Articles
  1. Economics

    Is a Recession Coming?

    In the space of a week, the VIX Index, a measure of market volatility, spiked from 13, suggesting extreme complacency, to over 50, evidencing total panic.
  2. Stock Analysis

    Net Neutrality: Pros and Cons

    The fight over net neutrality has become an amazing spectacle. But at its core, it's yet another skirmish in cable television's war to remain relevant.
  3. Investing

    What’s Holding Back the U.S. Consumer

    Even as job growth has surged and gasoline prices have plunged, U.S. consumers are proving slow to respond and repair their overextended balance sheets.
  4. Personal Finance

    A Day in the Life of an Equity Research Analyst

    What does an equity research analyst do on an everyday basis?
  5. Mutual Funds & ETFs

    ETF Analysis: PowerShares S&P 500 Downside Hedged

    Find out about the PowerShares S&P 500 Downside Hedged ETF, and learn detailed information about characteristics, suitability and recommendations of it.
  6. Mutual Funds & ETFs

    ETF Analysis: ProShares Large Cap Core Plus

    Learn information about the ProShares Large Cap Core Plus ETF, and explore detailed analysis of its characteristics, suitability and recommendations.
  7. Mutual Funds & ETFs

    ETF Analysis: iShares Core Growth Allocation

    Find out about the iShares Core Growth Allocation Fund, and learn detailed information about its characteristics, suitability and recommendations.
  8. Mutual Funds & ETFs

    ETF Analysis: iShares MSCI USA Minimum Volatility

    Learn about the iShares MSCI USA Minimum Volatility exchange-traded fund, which invests in low-volatility equities traded on the U.S. stock market.
  9. Stock Analysis

    Should You Follow Millionaires into This Sector?

    Millionaire investors—and those who follow them—should take another look at the current economic situation before making any more investment decisions.
  10. Professionals

    What to do During a Market Correction

    The market has corrected...now what? Here's what you should consider rather than panicking.
RELATED TERMS
  1. Equity

    The value of an asset less the value of all liabilities on that ...
  2. The New Deal

    A series of domestic programs designed to help the United States ...
  3. Hard-To-Sell Asset

    An asset that is extremely difficult to dispose of either due ...
  4. Sucker Yield

    When an investor has essentially risked all of his capital for ...
  5. PT (Perseroan Terbatas)

    An acronym for Perseroan Terbatas, which is Limited Liability ...
  6. Ltd. (Limited)

    An abbreviation of "limited," Ltd. is a suffix that ...
RELATED FAQS
  1. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  2. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  3. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
  4. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>
  5. What is the difference between issued share capital and subscribed share capital?

    The difference between subscribed share capital and issued share capital is the former relates to the amount of stock for ... Read Full Answer >>
  6. How does the risk of investing in the industrial sector compare to the broader market?

    There is increased risk when investing in the industrial sector compared to the broader market due to high debt loads and ... Read Full Answer >>

You May Also Like

COMPANIES IN THIS ARTICLE
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!