4 Things That SodaStream Must Do in 2012

SodaStream (Nasdaq: SODA  ) needs to replace its own carbonator after a flat performance in 2011.

Despite taking the country by storm, blowing past Wall Street's profit targets in every quarter since going public in late 2010, and nabbing wider retail distribution, SodaStream shares are trading just 8% higher this year through yesterday's close.

Investors will expect more out of the company behind the popular home-based carbonated beverage system in 2012, but let's go over a few things that need to happen for SodaStream to be a success.

1. Consumable sales need to keep up with soda-maker revenue
SodaStream is growing quickly, but it's problematic to see starter kits consistently selling at a headier pace than the higher-margin CO2 carbonator tanks and flavored-syrup bottles.

It may never be even. A lot of people are buying SodaStream systems just to fizz up tap water. They prefer the seltzer over flavored pop. More active users may opt for renegade third-party carbonation tanks. As far as self-contained ecosystems, SodaStream is no Green Mountain (Nasdaq: GMCR  ) . It's easy for buyers to stray, even though retrofitting the makers to take third-party carbonators isn't as easy as incorporating a reusable filter in a Keurig.

However, watching the soda-maker's sales soar 54% in its latest quarter, as consumables inched just 26% higher, reveals too wide a gap. Consumables need to improve to show that this isn't a fad.

2. Primo's flavorstation needs to remain a disappointment
Heads turned earlier this year when Primo Water's (Nasdaq: PRMW  ) flavorstation was unveiled as a direct competitor to SodaStream's system. Priced competitively and armed with Primo's reach through its exchangeable water business, flavorstation could have been a force in areas where SodaStream hasn't gained much ground as a distributor.

Well, Primo stunned investors earlier this quarter when it warned that flavor reformulation delays and its inability to get anyone outside of Lowe's (NYSE: LOW  ) to carry the product would result in less than $2 million for the platform this quarter.

Now that Primo has supposedly worked out the kinks, SodaStream will want to try to keep it that way.

3. SodaStream analysts need to hop off the euro
As an Israeli-based company that reports its results in euros, SodaStream offers conversions in its financial reports for stateside investors.

I'm certainly not jingoistic enough to suggest that SodaStream change its reporting standards, but stateside analysts can do everyone here a favor and begin putting out their estimates in dollar-denominated guesses.

A SeekingAlpha article earlier this week called out SodaStream as too expensive because it's trading for 23 times forward earnings.

It's not. The 1.47 per-share figure you see across financial websites is the analyst average in euros. That translates into $1.91 a share, giving SodaStream a more accurate multiple of 18 times forward earnings. Whether that would have made a difference is debatable, but you're seeing a lot of bears underestimate SodaStream's earnings because of this little thing.

4. SodaStream's distribution needs to go more mainstream
SodaStream continues to land attractive retailers who want to stock up on SodaStream syrups and makers. Some even offer carbonator exchanges at a discount. Staples (Nasdaq: SPLS  ) and Target (NYSE: TGT  ) hopped on the SodaStream bandwagon earlier this quarter!

However, SodaStream is lacking representation at the grocery store. Obviously, supermarkets don't want to anger the soda giants by making it easier for consumers to make fresher soft drinks at home. It also took grocers to match Bed Bath & Beyond (Nasdaq: BBBY  ) , office supply superstores, and department store chains in offering Keurig K-Cups for Green Mountain systems. However, SodaStream can't expect fizz-seekers to wind up at Staples or Bed Bath & Beyond whenever they're running low on diet cream soda syrup.

Pop goes the world
There are certainly other things that can help the SodaStream story along in 2012.

Deeper market penetration and an even wider geographic distribution network obviously wouldn't hurt. However, if SodaStream is able to keep moving in the right direction -- keeping its streak of market-thumping quarters alive -- it should be a winning year for SodaStream investors.

As part of the CAPScall initiative for accountability, I went ahead and started a bullish call for SodaStream on Motley Fool CAPS earlier this year. The past was OK. The future should be fun and fizzy.

Motley Fool's top stock for 2012 isn't SodaStream. If you want to find out what it is, a special report reveals all. It's entirely free, but will only be available for a limited time, so check it out now.

Longtime Fool contributor Rick Munarriz calls them as he sees them. He does not own shares in any of the stocks in this story, except for Green Mountain. Rick is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early.

Motley Fool newsletter services have recommended buying shares of Lowe's, Staples, Green Mountain Coffee Roasters, Bed Bath & Beyond, and SodaStream International. Motley Fool newsletter services have recommended writing covered calls in Lowe's. Motley Fool newsletter services have recommended creating a lurking gator position in Green Mountain Coffee Roasters. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Read/Post Comments (3) | Recommend This Article (4)

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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On December 28, 2011, at 2:51 PM, stockpost8 wrote:

    Sodastream has been available for several months now at Meijer stores, which are biggest grocers in the area.

  • Report this Comment On December 28, 2011, at 10:18 PM, martinitony wrote:

    Please realize that the consumables can't grow as fast as the sales of new systems in percentage terms. Consumable sales to existing users should be relatively constant year to year. Once you have a machine your use of the CO2 and syrups would stay the same from year to year. The sale of consumables should be directly proportionate to all units in use.

    The increase in starter kits is measured against last years sales of starter kits, but the increase in consumables is measured against a cumulative sales over years of additional users.

    EG. If I sell 1 million kits and increase the base of users to say 10 million and the next year I sell 1.5 million kits, I have an increase in starter kits of 50%. (.5 million divided by 1 million)

    However, consumables would only rise by 15%. (1.5 million divided by 10 million)

  • Report this Comment On December 28, 2011, at 11:41 PM, docmtc50 wrote:

    I agree with martinitony. There will be a lag in consumables adinfinitum. I figure as long as new sales keep up a reasonable pace and consumables follow suit as they have, proportionately, I'm holding my position. Oh, we'll need those fine quaterly reports, too, with some happy face guidance!

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