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Spokane, Washington  Est. May 19, 1883

The Motley Fool: Boston Beer ready to brew profits

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After a rough 2015 and further weakness so far this year, Boston Beer’s (NYSE: SAM) shares have fallen far from their all-time highs of January 2015. Slowing sales of the company’s core Sam Adams-brand beer and multiple analyst downgrades have skunked the stock, presenting an attractive buying opportunity for long-term investors interested in a high-quality business trading at a bargain price.

The popularity of its Sam Adams line of beers has allowed Boston Beer to build a powerful distribution system, with shelf and tap space for its newest products. That’s helped its Angry Orchard become the top-selling brand in the fast-growing hard cider category and should also help spur adoption of its new hard soda drinks and nitro beers.

But competition has been intensifying within the craft brew arena, with industry behemoths snapping up promising craft brewers and new brewers continuing to spring up. (More than 4,000 now operate in the U.S., according to the Brewers Association.)

This competition has taken a toll on Boston Beer’s results in recent months, with core shipment volume falling 6 percent year over year to 830,000 barrels in the first quarter. Its Alchemy and Science craft beer incubator has been driving new growth, though, with further growth expected. With its popular brands, strong distribution system and innovative culture, Boston Beer is worth considering for your portfolio. (The Motley Fool owns shares of and has recommended Boston Beer.)

Ask the Fool

Q: What’s a company’s “burn rate”? - B.C., Santa Rosa, California

A: It’s a measure that reflects how quickly a company is burning through its cash. You needn’t worry about it with most established companies, but it can be worth checking the burn rates of smaller, fast-growing or shakier companies.

Imagine, for example, that in its most recent quarterly report, Spray-on Socks Co. (ticker: PFFFT) reported negative $50 million in free cash flow, as its cash balance fell to $100 million from $150 million. It’s not unusual for companies to lose money in their early years, but burning through money too rapidly is also what puts many of them out of business.

In PFFFT’s case, at its current burn rate of $50 million per quarter, it will run out of cash in just a few quarters. To stay alive, it will have to cut spending (which could slow its growth) or find more money (perhaps taking on debt or issuing additional stock, which can hurt existing shareholders).

Q: What is the Federal Reserve, and what does it do? - W.T., Wilkes-Barre, Pennsylvania

A: Founded by Congress in 1913 and often referred to as “the Fed,” it’s the central bank of the United States.

In its own words, the Federal Reserve has four main responsibilities: “Conducting the nation’s monetary policy by influencing money and credit conditions in the economy in pursuit of full employment and stable prices,” “supervising and regulating banks and other important financial institutions,” “maintaining the stability of the financial system and containing systemic risk that may arise in financial markets” and “providing certain financial services to the U.S. government, U.S. financial institutions and foreign official institutions.”

You can learn more about it at federalreserve.gov.

My dumbest Investment

I bought shares of True Religion Apparel at $6 per share and decided to sell if it reached $25 - which I did. It went all the way up to $36 per share, so I was mad at myself for having reaped a smaller profit than I could have. However, I can’t find it at all now, so I guess selling at $25 wasn’t such a bad thing to do.

I was a newbie investor then, and the newsletters that I read said that it’s important to establish a sell point and stick to it. - B.B., online

The Fool responds: You can’t find True Religion in the stock listings anymore because the company was bought out by the TowerBrook Capital Partners limited partnership in 2013 for about $824 million.

Instead of kicking yourself for selling, ask yourself what your assessment of True Religion’s value was at the time. If you didn’t think the shares were overvalued at $25, when you sold them, and you believed that the company would keep growing by selling jeans for $300 and more, then hanging on would have been reasonable. If you had doubts, then selling was smart.

Don’t pick a sell price like $25 randomly. Try to have a handle on the company’s value. True Religion was actually ailing, which is why it sought a buyer. Remember that fashions regularly go out of style.