Is BUD a dud?

I came across this graph while doing research on Anheuser-Busch (BUD). It depicts clearly the dramatic reversal of fortunes for investors in BUD. Five years ago, BUD's total value (as measured by market cap) was generally four times the size of its three largest competitors. Now, BUD may finish the year as the next to the smallest of the group. How did that happen and what does it say about our investing environment?

The most significant impact to BUD's relative shrinkage was caused by the dramatic decline in the dollar. During the last five years, measuring from the height of BUD's market value, the euro has risen in strength against the dollar by 43.77%. The following graph depict the dollar's five year journey downward:

Had the dollar not dropped during the last five years, the values of the other beer companies would be almost one-third lower than they are. Essentially, that would mean BUD would still be almost twice the size of Heinekein, InBev and SABMiller. So almost all of Heinekein's relative growth came as a result of the dollar's decline. However, InBev and SABMiller made significant growth relative to BUD, even accounting for the decline in the dollar.

The engine for this significant growth is evident by reviewing each company's history of stock issuance or stock repurchase from 2002 to 2006. BUD started 2002 with 879 million shares and ended 2006 with 762 million shares, for a shrinkage of 117 million shares or almost 15% of the stock outstanding. Heinekein split shares 5 for 4 in 2004, but maintained 490 million shares throughout. InBev issued shares aggressively, moving from 430 million shares to 613 million shares, for an increase of almost 50%. SABMiller issued shares even more rapidly, moving from 841 million shares to 1,575 million shares for an almost 100% increase.

When adjustments are made for these changes in share counts, these companies fall back into their pre-2002 alignments. This mean that changes were not the result of major changes in operating results and organic growth patterns. But the differences in stock price movements resulting from the dollar effect and the growth strategy are dramatic.

BUD's stock price is roughly where it was in 2002; Heinekein's has moved up roughly 75%; Inbev's has moved up over 100% and SABMiller's is up over 200%! The dollar decline significantly affected investment performance, but the share issuance further correlated with favorable investment results, while share repurchases have done the opposite.

Inbev and SABMiller both went on shopping sprees around the world by issuing shares, while Heinekein utilized their own resources for a more methodical growth strategy. At the same time, BUD returned profits generously back to its shareholders, while pursuing non-capital intensive growth strategies.

As was evident in the "tech bubble," today's "go-go global" bubble puts a premium on aggressive share issuance and new market penetration. The markets are treating companies as if they are international venture funds which get penalized for not spending all their funds.