Why an Investment From Warren Buffett Might Not Be Enough to Rally Constellation Brands' Stock

Normally, news of Warren Buffett buying a stock sends it rallying, but in the case of beer maker Constellation Brands (STZ -1.20%), the stock is still struggling this year. Investors learned that Buffett's company, Berkshire Hathaway, added Constellation's stock to its portfolio in February. While that did give Constellation a bit of a boost, it hasn't been enough to turn its fortunes around. Here's why investors shouldn't expect the outlook to get better for Constellation's stock, even if Buffett adds to his stockpile. Tariffs pose a huge risk to Constellation's business U.S. President Donald Trump has been imposing tariffs on imports from multiple countries, including Mexico, which is where Constellation Brands brews its popular Modelo and Corona beers. A flat 25% tariff on all imports from the country could prove to be devastating for Constellation's operations, especially with people already battling high inflation in recent years. With the company's primary market being the U.S. and it produces beers in Mexico, Constellation Brands may be particularly vulnerable to a trade war involving the two countries. What investors will want to watch for is how the company's margins may deteriorate due to an increase in cost, and the effect on its sales. For the nine-month period ending Nov. 30, 2024, the company's net sales weren't all that impressive, totaling $8 billion and rising by just 3% year over year. Its gross profit of $4.2 billion was more than 52% of net sales, which was strong enough to enable the business to post a profit despite incurring goodwill impairment charges totaling $2.3 billion. However, adapting to and handling tariffs will be a significant test for the business, and an investment from Buffett doesn't change that. The stock looks cheap, but that doesn't mean it will recover anytime soon Over the past 12 months, Constellation Brands stock has fallen more than 30%. That's far worse than how the overall market has performed, with the S&P 500 rising by around 7% during that timeframe. Constellation has been an underperforming stock due to its poor growth, and the threat that tariffs pose to its business have caused the stock to go even lower. If you look at the stock's valuation, it doesn't look too expensive. Constellation is trading at a forward price-to-earnings multiple (which is based on analyst estimates) of less than 13. In comparison, the average stock in the S&P 500 trades at a forward earnings multiple of 21. These are, however, estimates, and they can change depending on the outlook for the business. There's still a great deal of uncertainty as to how steep tariffs may be, how long a trade war may go on, and how they will affect Constellation's top and bottom lines. Over time, as analysts get a better idea of what Constellation's numbers may look like this year, those estimates could change. The stock could start to look much more expensive if the expectation is that Constellation's earnings will decline significantly, which may very well be the case. The company reports its latest earnings numbers on April 9, which will give investors more insight into its guidance and what may be ahead for the business. Is Constellation Brands stock worth buying today? Constellation Brands didn't look like a great stock to own even prior to this year. It was struggling to generate any meaningful growth, and now, its growth prospects look even worse. Even if tariffs go away and the business recovers, it could still be a long, challenging road ahead. Buffett has invested in many consumer stocks in the past, and that alone hasn't made them good buys. Kraft Heinz, for instance, has been a staple in Berkshire's portfolio, and investors would likely be disappointed with the lackluster 23% gains it has produced over the past five years. Constellation isn't a stock I'd buy. There are many better growth stocks to choose from today, which have far better prospects over the long haul.