Are Craft Beer Stocks A Buy?

Unfortunately for investors, it may be much easier these days to find a good beer than to find a good beer stock. According to Citi analyst Wendy Nicholson, U.S. consumers are drinking more wine and spirits, which has put pressure on the beer business.

Craft beer has been a strong growth segment in the United States for decades, but competition in the space has exploded in recent years.

Nicholson noted that Blue Moon and Samuel Adams (Boston Beer Co Inc SAM), at 69 percent and 61 percent, respectively, have the highest ACV distribution levels among craft beer brands, although they are still short of Budweiser (Anheuser Busch Inbev SA (ADR) BUD) at 80 percent. However, a handful of the fastest growing craft brands, such as Ballast Point (13 percent) and Kona (Craft Brew Alliance Inc BREW) (23 percent) still have plenty of room for expansion.

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Unfortunately, even with the surge in competition, craft beer’s premium pricing has been on the rise and has accounted for a higher portion of the segments growth in the past five years.

For investors looking to get in on the craft beer craze by buying Craft Brew Alliance or Boston Beer Co, as Citi sees little upside to their share prices barring a buyout.

“With our investment recommendations on both stocks predicated on our outlook for revenue and profit growth for each business over the medium-term (neither of which is robust, for neither company), we continue to believe that both stocks are fairly valued at their current valuations,” Nicholson concluded.

Citi believes that a buyout for either stock in the near term is “unlikely.”

Disclosure: The author holds no position in the stocks mentioned.