SodaStream pops on partnership with Kraft

But is the purveyor of in-home carbonated drinks going to keep growing -- or suffer the fate of fad stocks like Crocs?

By InvestorPlace Jan 5, 2012 11:56AM

By Jeff Reeves


After the Great Recession, consumers started focusing on brewing premium beverages at home to save a few bucks. One popular gadget aimed at that market is produced by SodaStream International (SODA), which provides in-home carbonation for fizzy treats and fancy alcoholic drinks.


SodaStream has been seeing big sales growth since it went public in 2010. Sales are set to jump 22% in fiscal 2011, and the company has blown away profit forecasts in each of the past four quarters.


Next up for SodaStream: A big-time partnership with the big-name beverage brands Crystal Light and Country Time lemonade. The stock popped as much as 10% in early trading Thursday as a result of the news. But is it enough to keep SODA stock from losing its fizz, as so many fad stocks have done?


Already, by midmorning, the stock's jump was trimmed to just over 5%. So the gains may not stick for long.


But let's get to the details: Kraft Foods (KFT) announced the deal with SodaStream, with its top brands becoming available on SodaStream's in-home carbonation systems. Much as Green Mountain Coffee (GMCR) did with its Keurig single-brew coffee machines, SodaStream is relying on consumers loyal to a particular brand to give their pricey kitchen appliances a shot. Keurig's coffee machines boast java-branded K-Cups of coffee by Starbucks (SBUX), among others.


Therein lies the problem, though. While Keurig was a roaring success in previous years, there are signs that momentum is waning and that investors are skeptical of the company's growth prospects. After all, after folks have one machine, they hardly need another. And the brewers are sold nearly at cost, with most of profits coming from licensing the coffee-filled K-Cups that GMCR has patented.


The result is that, while Green Mountain Coffee has seen its revenue increase fivefold since 2008 and its stock is up 10 times over in the same period, GMCR shares are down 50% in the past six months or so. The bears have started sharpening their claws, wondering whether the fad of Keurig is about to fade.


SodaStream appears to be growing still, though it faces the same headwinds. Consider that while 27% of outstanding Green Mountain shares are owned by short-side traders -- those betting the stock will drop -- Sodastream boasts an ugly 58% short interest. That means more than half the shareholders of available SODA stock are betting against the company.


Not a good sign.


Of course, the deal with Kraft could send some of those short-sellers scurrying for the exits. Just because most people are betting against a stock doesn’t mean it can’t succeed.

However, the risk of trendy consumer stocks has been chronicled many times on Wall Street. Fads like Crocs (CROX) run up and then flame out spectacularly.


Will SodaStream be the next big-time flop? Maybe. Personally I don’t think Country Time and Crystal Light have the currency to singlehandedly save the stock. I have been bearish on SODA for some time, and I think the fizz in shares Thursday is probably just some short covering as traders hedge their bets.


But if SodaStream can keep offering tasty beverages cheaply and conveniently via home-carbonation systems, it could be around for a long time. The company is up about 18% since it started trading and continues to post strong profits and revenue. In the end, those are the only results investors really care about.



Jeff Reeves is the editor of InvestorPlace.com. Write him at editor@investorplace​​.com, follow him on Twitter via @JeffReevesIP and become a fan of InvestorPlace on Facebook. Jeff Reeves holds a position in Alcoa, but no other publicly traded stocks.




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8Comments
Jan 5, 2012 2:51PM
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Our family loves the products, flavors and the fact it saves money, space, cans and those 2 liter bottles that are a pain.   Hope the stock thrives, but odds are against them.
Jan 5, 2012 3:25PM
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Bought a unit over Thanksgiving holiday for personal use.  Love it.  Hope they suceed.
Jan 5, 2012 3:19PM
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With the economy in the shape it's in now, why not forgo Soda Stream and buy a new or used soda fountain? You can per-determine the carbonation and the sugar content for the perfect beverage every time.
The tanks are larger volume and  readily  available and more economical too. You can buy your favorite soda (bag in a box) and enjoy the real think. All in all I believe soda stream will fold.
Jan 5, 2012 4:35PM
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Cheap? By the time you buy the syrup and the carbonation bottle It is just as expensive as buying soda at the store. It is a fad and will fade fast.
Jan 5, 2012 4:48PM
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Like polyneutron, I have an in home soda fountain with a Wunder-bar soda "gun" at my kitchen sink.  I purchase the bag-in-box syrup from Sams club and other sources, and always have cold soda at my fingertips.  It is convient, and well worth the initial expense for the amount of soda that we consume in our household.

 

Plus I get as much soda-water as I want for basically free.

Jan 5, 2012 6:59PM
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What nobody ever factors in is the VALUE of your time.    I think it's dumb, You can buy a 24 can of coke for under $10 here in Texas.    It will always be fresh and correctly mixed with out any headaches.

If you are drinking more than that per month then you better be ready for the dentist bills.


Jan 5, 2012 6:35PM
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My husband laughed when he saw the ads for Sodastream in the US. His parents have one in their attic from the 70's in Scotland, when they were all the rage in the UK. If it didn't last then, why would it last now?

Not only that, but the unit costs $100 in the US, and only £40 ($61) in the UK and that's with 20% VAT tax included in the price. Americans are getting ripped off thinking they're buying something cool and new. Sodastream will have to drop their prices for countries that know better, and that will affect their profits.
Jan 5, 2012 5:17PM
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I had something similar that I bought from Schwans back in the 90's. It made acceptable soda but was expensive. Getting the proprietary style co2 bottles refilled was very expensive and could only be done by Schwans. I wouldn't recommend any system like that. If you can get ALL the ingredients without being locked into a single supplier it might not be so bad.
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