Sector financial performance:

This company, who is a craft brewing company, has been grouped into craft sector of beer industry.

The sector had been growing before 2016 as consumers’ taste shifted to better beers with higher quality and better taste while the whole beer industry, especially premium beer sector, has been declining. Sales of companies in this sector decreased in 2016/2017 , as indicated by decrease in volume (about 6% annually ) while increasing unit price ( about 1.5-2.5% annually), and started a rebounding in 2018.

Because unit price continued to increase, companies’ margins seem to have generally been improved while decreased sales. However, increase in price/increased margin was partially offset by gradually increasing production, labor, and packaging costs since 2017. Therefore, in current situation where demand seems to be rebounding, we have seen a general improvement in profitability among companies in this sector in the past year. The average gross margin is currently about 42% and operating margin down to 7%.

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Company performance:

Demand for products of this company seems to be rebounding in 2018 after experienced fast decrease (down annual 6% in volume) for 2017 and 2016 due to very strong competition from tremendous new craft beer companies who just entered into this sector. The decrease in 2016 and 2017 has been reflected by decrease in shipment when unit price kept rising. The decrease trend in volume seems to be rebounding in 2018.

For the last 13 weeks of fiscal 2018 compared with same period of 2017(ended 20180930)

Sales increased 24.2% due to increase of 23.5% in shipment and increase of 0.6% in unit price.

For the first 39 weeks of fiscal 2018 compared with same period of 2017(20180929)

Sales increased 17.3% due to increase of 16% in shipment and increase of 1.2% in price.

For fiscal 2017 compared with 2016

Sales decreased 4.8% due to decrease of 6.2% in shipment offset by increase of 1.6% in price.

For fiscal 2016 compared with 2015

Sales decreased 5.6% due to decrease of 5.6% in shipment.

For fiscal 2015 compared with 2014

Sales increased 6.3% due to increase of 3.6% in shipment and increase of 2.6% in price.

We have seen that changes in gross margin have been related closely with changes in price before 2018. However, the continuing increase in price in 2018 seems to have been offset by increased production costs and caused its gross margin down to about 51%. Fast increasing SG&A costs seems to be hurting this company’s profitability by lowering its operating margin to about 10% in 2018.

Both net income and cash inflow demonstrated negative growth in past several years due to increased costs.

Stock price

Our price/sales relativity of valuation methods and analysis indicate that this stock is currently relatively fairly valued by the market with an enterprise price/EBI ratio of 49 ($280/share). It seems that the sale is rebounding and it can find way to lower the increasing costs.