The Boston Beer Company, Inc. (NYSE:SAM)

We are seeing three major trends play out here:

1) Industry trends: We continue to see the effects of the trade up effect as customers are electing to purchase the pricier more flavorful brands of beer rather than go out to the bar. This is driving growth in the craft beer segment despite negative growth in the beer industry as a whole.

2) Fundamental business: One of the most important things in craft beer sales is the establishment and maintenance of a strong brand name, which Boston Beer has. Their strong free cash flows are more than enough to continue to finance and aggressive marketing strategy. Also, their larger size relative to their craft beer competitors give them a scale advantage that allows for pricing power now, and will allow Boston Beer to beat out their competitors as a pricing war starts in the near future.

3) Short interest as a short term catalyst: Recently there has been a large short interest in SAM. Some see this as a negative for the stock, I take the opposite view. If you look back at when the short interest really starting picking up, it was when the stock was around the 85-90 level. These shorts are now beginning to get frustrated with the recent run-up of the stock price and a great q3 earnings period. (think about it... if you got short at $90, how much longer could you take the hit until you finally realize the stock is going to the moon?)

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