Momentum, the tendency for rising stocks to soar higher and slumping ones to keep dropping, is a market anomaly investing theorists still don’t fully understand.

 

However, the fact remains: Once a popular growth stock gets going up, its ability to deliver big profits commonly far surpasses all expectations.

 

An excellent example of this is the Boston Beer Co., Inc. (NYSE: SAM), best known for its Samuel Adams brand and currently the leading domestic manufacturer of premium craft beers. Shares of Boston Beer climbed nearly 20% last year and are up about 500% in the past five years, compared with a 78% gain for the S&P 500 during the same period.

 

 

                                                                                             

After such a meteoric rise and with its price-to-earnings ratio now pumped up to nearly 44, Boston Beer could pull back substantially in the near future. Ultimately, however, I think the stock is set for at least another year of outperformance, with a strong possibility of delivering double-digit gains in 2015.

 

One key reason: It still has momentum on its side.

 

#-ad_banner-#Sales and profits rose 17% and 12% a year, respectively, for the past three years, versus overall beer industry average growth rates of 4% and 7% during that time. The top and bottom lines surged 25% and 47%, respectively, in the third quarter, and analysts expect similar full-year results when Boston Beer reports again in February.

 

Plus, in terms of its size, the company is in a sweet spot.

 

To be sure, it lacks the scale and cost advantages of much larger traditional beer makers like Anheuser-Busch InBev SA/NV (NYSE: BUD) and SABMiller Plc (OTC: SBMRY), both of which have begun trying to use their extra muscle to gain a foothold in the craft beer space. However, Boston Beer can distribute its products more widely and efficiently than the vast majority of its roughly 3,000 rivals, which are typically far smaller and more locally focused. And, compared to the craft brew options currently available from the big beer companies, Boston Beer has a reputation for substantially higher quality.

 

As a result, the firm has been able to capture about a 6% market share. In such a crowded field, even that’s enough to dominate — particularly when a company boasts such an iconic brand, Samuel Adams, and a deep product line with five dozen premium offerings.

 

This dominance will spur further growth as the craft brew industry continues to ascend. According to the Brewers Association, an industry trade group, craft beer made up about 8% of total U.S. beer sales by volume and 14% by dollar value in 2013, up from 7% and 10%, respectively, in 2012. Updated figures for 2014, due out in March, should show similarly strong expansion.

 

In straight dollar terms, domestic craft beer sales reached $14.3 billion in 2013 — more than a twofold gain from $7 billion in 2009. Assuming a similar growth rate, the total could hit $20 billion this year.

 

Thus, at its current market share, Boston Beer’s full-year craft beer sales could reach $1.2 billion. That’s almost 31% more than the $919 million of revenue projected for 2014, a total that includes sales of Angry Orchard, the premium hard cider brand the firm launched a few years ago.

 

With annual sales of approximately $208 million, Angry Orchard is still a fairly small portion of Boston Beer’s overall business. But the brand has taken the booming hard cider market by storm and is growing even more quickly than the craft beer segment.

 

Indeed, current sales represent more than a 100% year-over-year gain. And they give Boston Beer 57% of the $366-million hard cider market, compared with barely an 11% share for its next closest competitor, The Woodchuck Cidery.

 

With such a huge advantage, Boston Beer is perfectly positioned to profit from blistering growth of the overall hard cider industry, where U.S. sales soared about 23% in 2011, 65% in 2012 and 100% in 2013. Some industry experts estimate industry revenues could triple again during the next 10 years.

 

In terms of a global footprint, Boston Beer has traditionally done most of its business domestically. Although the firm has customers in 30 countries, foreign export volumes are low and only account for perhaps 1%-to-2% of its total revenue.

 

However, I’ll be surprised if that figure doesn’t increase substantially in coming years because overseas growth possibilities are simply too big to ignore. Market research firm IBISWorld projects the craft beer export market will more than quadruple to $330 million in 2019, from $74 million last year.

 

Risks To Consider: Crashing commodity prices are raising fears of a recession. If one occurs, then consumers might cut back on premium craft brews like Samuel Adams. Even without a recession, such a high P/E ratio greatly increases downside risk in the event of some sort of shock, like a short-term correction in stocks or even a small earnings miss on the part of Boston Beers.

 

Action To Take –> Consider investing in the Boston Beer Co., a classic momentum stock that still has market-beating upside. Based on its recent performance and probable market dominance going forward, the firm should comfortably meet consensus estimates for 20% earnings growth to $7.88 a share this year. At the current earnings multiple, this suggests the potential for an equivalent stock price gain to $347 in 2015, from $289 currently.

 

Academic studies have shown that momentum is one of the only indicators that has consistently outperformed the market. In fact, two of my colleagues have been quietly testing the Maximum Profit system, which is making a small group of investors a lot of money. It flags exactly which stocks are about to jump double, even triple digits in the coming days, weeks and months. And it recently tagged a few more stocks that could do the same. After nearly two years of beta-testing they are finally revealing this system. To learn more, click here.​