Why SodaStream's stock is bubbling up

PepsiCo denied it might buy the make-your-own-soda company, but someone else could be a likely acquirer.

By Jonathan Berr Jun 7, 2013 9:47AM
Shares of SodaStream (SODA) surged nearly 3% higher Thursday even though the initial impetus for the jump proved to be wrong. A news report said the Israeli company that sells make-your-own soda kits was set to be taken over by PepsiCo (PEP). But PepsiCo was quick to deny any such move.
Still, SodaStream kept its fizz because investors reckoned that if PepsiCo didn't buy SodaStream, someone else would. In fact, analysts at Barclay's argued that the shares could leap 44% as SodaStream continues to grow in popularity in the U.S. The company's recent quarterly results are cause for optimism.

Net income surged 19.5% to $12.1 million, or 57 cents per share. Revenue jumped 33.9% to $117.6 million, fueled by double-digit gains in sales for both Starter Kits and consumables, such as soda flavorings. Sales in the Americas, SodaStream's largest market, rose almost 90%. And the company boosted its earnings guidance.

The results beat Wall Street’s expectations, but some investors remain concerned that SodaStream's growth prospects may slow. The stock is also a favorite of short-sellers, who profit when shares of companies they see as overvalued decline. Plus, costs are rising, and gross margins are declining.  

Bottles of SodaStream flavors (© Frances Roberts/Alamy)Sales and marketing expenses in the first quarter rose to $38.9 million, or 33% of revenue, from $27.3 million, or 31% of revenue, a year earlier as SodaStream spent more on advertising. Demand outside the U.S. moderated as customers worked down their excess inventories.  

On the plus side, SodaStream has done an effective job at leveraging its product with existing brands. Consumers can carbonate Kool-Aid, CountryTime Lemonade and Crystal Light flavors. There's obvious potential for more growth here.

Unfortunately for investors, the shares are pricey, trading at a price-to-earnings ratio of 31.84, near a five-year high. But some analysts, such as those at Barclay’s, think the stock has more room to run. They have a 52-week price target on it of $100, about 40% higher than where it currently trades. Most analysts, though, aren't as bullish. The average 52-week target is $69, less than where it trades now.

Investors who want to bet on a trendy drinkmaker should consider K-Cup producer Green Mountain Coffee (GMCR). Not only is its 28.78 multiple a bit cheaper than SodaStream's, but Wall Street analysts see the stock's potential upside topping 8%.

Got a question on this or any other episode of Killer Companies, or have a suggestion for a company we should cover? Submit your comments below.

 

Jonathan Berr does not own shares of the listed stocks. Follow him on Twitter @jdberr.
8Comments
Jun 7, 2013 12:17PM
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When are the "carbon credits" which cause such inflation of energy costs going to wise up and start banning purposely carbonarted beverages?  The CO2 from carbonated drinks is about the same as the total from automobiles now.
Jun 7, 2013 11:11AM
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Soda stream is more expensive than Coke in 2 liter bottles. When people figure this out, it's toast.
Jun 7, 2013 10:12AM
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Cool device, too bad I quit drinking soda/pop totally. Just drinking 1% milk to gain muscle.
Jun 7, 2013 12:45PM
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It's all soda. You can doll it up all you want, package it in cutting edge packaging, and jack the price up, and shaft the consumer. I won't buy this. I'll stick with the proven products. This won't last long....I give it until years end. Except in Israel, of course.
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