We recently published a list of 12 Best Brewery Stocks to Buy According to Hedge Funds. In this article, we are going to take a look at where SNDL Inc. (NASDAQ:SNDL) stands against other best brewery stocks to buy according to hedge funds.
The global alcohol industry is currently grappling with strict regulations, high taxes, inflation, and rising costs, which are likely to persist and may squeeze the profit margins of alcohol producers. The global brewing industry had been hit particularly hard as beer production worldwide fell to 1.88 billion hectoliters last year, representing a YoY decline of 0.9 %.
Peter Hintermeier, Managing Director of BarthHaas, commented:
“After we had managed to post modest growth in 2022 despite unfavorable conditions, we were expecting another small increase in 2023. However, energy, raw materials, packaging, logistics, and labor costs remained at a high level, which put pressure on the brewing business in many countries.”
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The American brewing industry is also faced with a declining demand, as beer consumption in the US last year fell to its lowest level since the 1970s, according to the Brewers’ Association. In fact, in 2022, the American spirits industry surpassed beer in revenue for the first time ever. The trend then continued in 2023, driven primarily by the spirits RTD category. Nevertheless, the country’s major brewers were still in good financial health, thanks to rising prices and a consumer shift towards more expensive, often imported beers.
A major factor behind the decreasing demand is also global drinking habits have shifted dramatically over the last few years. The modern consumers are increasingly focused on health and wellness and seek alternatives to traditional alcoholic beverages, giving rise to the rapidly growing low and no-alcohol trend. To make sure they don’t miss out on the opportunity, several industry behemoths have hopped on the zero-alcohol bandwagon and are now offering products with all of the taste and none of the booze.
Despite the aforementioned challenges, the alcohol sector can be an attractive option for investors looking to diversify their portfolios, simply because of the buffer it provides during tough economic times. An analysis by Goldman Sachs has revealed that beer and spirits volumes in the American market have shown little correlation with economic growth. Their sales are more related to the general trends of alcohol consumption per capita rather than the general state of the economy. This is because beer and spirits are often seen as affordable luxuries or even staples.
According to a study by Cambridge University, the decreasing levels of average per capita income lead to very small changes in gross alcohol, wine, and beer consumption. In fact, the surge in unemployment during recessions could instead trigger an increase in the average alcohol intake.
A great example of this is how Americans drank more alcohol during the pandemic and this was also reflected in the resultant imposts collected by the national kitty. Alcohol tax revenues collected by the U.S. Treasury Department rose by 8% in the fiscal year that ended on Sept. 30, 2021, compared to the previous year, and remained well above pre-pandemic levels.
Another popular investment vehicle in the alcohol industry is rare whiskeys. Aptly named ‘Liquid Gold’, this beloved liquor can preserve and even increase in value during economic instabilities, inflationary periods, and recessions. One simply cannot forget about the bottle of The Emerald Isle Collection that sold in auction earlier this year for $2.8 million, or the 1975 cask of Ardbeg single malt which was acquired by a private collector in Asia in 2022 for over $20 million, more than double the amount Glenmorangie paid for the entire Ardbeg distillery and all its stock in 1997.
The Rare Whisky 101 Apex 1000 Index tracks whiskeys that are highly sought after for collection. It has gained over 384% since 2013, against almost 301% gains by S&P’s famous benchmark of the top 500 companies for the same period. The RW Japanese 100 Index, which includes 100 collector’s bottles from Japan, has seen gains of around 350% since 2015. The index includes bottles like Ichiro’s Malt ‘Card’ Ace of Spades, Ace of Diamonds, and King of Hearts, among others.
Methodology
To collect data for this article, we scanned Insider Monkey’s database of 900 hedge funds and picked the top 12 companies operating in the brewing sector with the highest number of hedge fund investors. When two or more companies had the same number of hedge funds investing in them, we ranked them by the revenue of their last financial year instead.
At Insider Monkey we are obsessed with the stocks that hedge funds pile into. The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
A close-up shot of a cannabis plant, showing its intricate details.
SNDL Inc. (NASDAQ:SNDL)
Number of Hedge Fund Holders: 10
SNDL Inc. (NASDAQ:SNDL) is the largest private-sector liquor and cannabis retailer in Canada. Though not a pure-play brewing company itself, SNDL offers a selection of thousands of beers in its stores. The company also operates as a licensed cannabis producer and stands as one of Canada’s premier vertically integrated cannabis enterprises.
Like many other companies involved in the cannabis business, SNDL Inc. (NASDAQ:SNDL) has been focused on sales growth instead of profits, increasing its revenue from $60.9 million in 2020 to just over $909 million last year. However, the liquor and cannabis retailer still hasn’t turned a profit in its last four financial years. It seems like the strategy is changing now as the Calgary-based company announced a restructuring plan in July to help slash its annual expenses by $20 million and finally improve its profitability.
In Q3 of 2024, SNDL Inc. (NASDAQ:SNDL) reported a net revenue of $144.6 million from its liquor business, a decline of $7.2 million or 4.8% compared to the prior year. However, the company continues to believe in the long-term potential of the segment, which still managed to deliver significant growth in operating income.
SNDL Inc. (NASDAQ:SNDL) also remains financially strong and ended the third quarter with a cash balance of $263 million, up from $183 million in Q2, with no outstanding debt. To return value to its shareholders, the company also announced a share repurchase program of around $70.3 million in November. The company is on track to deliver positive free cash flow for the 2024 calendar year, meeting or even exceeding its guidance.
SNDL Inc. (NASDAQ:SNDL) is focused on strategic expansion and announced the acquisition of all outstanding shares of Nova Cannabis Inc. recently, marking a major milestone. Moreover, it has also closed the acquisition of Indiva, enabling it to emerge as the leader in the Canadian infused edibles category.
In the third quarter of 2024, shares of SNDL Inc. (NASDAQ:SNDL) were held by 10 hedge funds tracked by IM with a total stake value of $23.34 million, up 42.5% from the previous quarter.
Overall, SNDL ranks 11th on our list of best brewery stocks to buy according to hedge funds. While we acknowledge the potential for SNDL to grow, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than SNDL but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.