SodaStream Pops in More Ways Than One

SodaStream (Nasdaq: SODA  ) has gone from fizzy to flat.

Shares of the company behind the popular home-based soda makers had soared 22% in the four trading days leading up to this morning's report. Today it's giving it all back.

Results were decent enough on the surface. Revenue climbed 32% to $85.7 million. Adjusted earnings rose 21% to $6.7 million, though it's flat at $0.25 on a per-share basis because of the weighted influx of new shares during the fourth quarter of 2010's IPO.

Convert that into euros and SodaStream landed well ahead of expectations, just as the consumer-facing speedster has done in each of its first five quarters since going public.

Guidance is solid, as SodaStream sees revenue and adjusted earnings climbing 28% and 35%, respectively, for all of 2012. We're looking at a fast-growing company delivering double-digit net margins, and it's hard to complain about that.

The report was a beat looking back and solid looking ahead, so why is Mr. Market spitting it back out today?

Well, let's take a closer look at the quarter's performance. Revenue on the starter kits rose 24% and the consumables (CO2 carbonators and flavors) climbed 38%. That doesn't seem too shabby, but now let's get to unit sales.

SodaStream's been rolling out fancier starter systems to woo shoppers who want something more stylish and functional. The end result is that folks are willing to pay more for the systems. That's great, but in terms of units we're only talking about 767,000 systems sold during the quarter. That's just an 8% uptick over the 2010 holiday shopping season, contrasting the 24% spike in flavors and 27% increase in carbonators on a unit basis.

One can argue that SodaStream can't win. The shares sold off last year when soda makers were outpacing consumables. "Folks aren't using the darn things after they buy them," cynics argued. Now we're at the other end of the argument. "Folks are using them, but they're just not buying them!"

Cynics, huh? They're never wrong.

The fears are overblown. We've now had two years of holiday promotional pushes since SodaStream entered the U.S. market. Isn't it better to know that they're not collecting dust in the attic next to the Margaritaville drink makers and ice cream churners than to see the starter kits flying off the shelves?

I'm not a fan of the tireless comparisons of SodaStream to Green Mountain Coffee Roasters (Nasdaq: GMCR  ) . However, they both tend to go through the same patchy moments of doubt where investors fret about the pace of new systems relative to the higher-margin consumables that inevitably follow.

So let's put things into its proper perspective. Yes, the shares are selling off this morning. In reality, investors who bought just a week ago are still showing positive gains. Keep an eye on system sales in the future, of course, but as long as consumables are growing nicely you'd be an idiot to call this a fad.

Drink up
Both Green Mountain and SodaStream were beating the market since being recommended to Rule Breakers subscribers, but this is now a great time to discover the next rule-breaking multibagger that the newsletter has unearthed. It's a free report. Want it? Get it.

Motley Fool newsletter services have recommended buying shares of SodaStream International and Green Mountain Coffee Roasters. 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.

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.


Read/Post Comments (7) | Recommend This Article (6)

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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 February 29, 2012, at 10:44 AM, landoncz wrote:

    Mgmt explained the 8% uptick as "the lion's share" of holiday machine orders were placed in Q3 not Q4, and they argue that it's more meaningful to compare the last half of 2010 to the last half of 2011 to even out the split between quarters.

    This makes sense as 2011 Q3 was a big spike in machines and a huge beat. It also makes sense that US retail outlets wanted to place their orders for machines earlier in 2011 than they did in 2010 given they can better gauge demand with 2010's year of sales experience under their belt.

    Also, it would be worth mentioning that their guidance of 1.48 Euros ($2.00) for FY2012 translates to a forward PE of just 20 at the current share price of $40. And if you factor in their chronic history of earnings beats, you can well assume their forward PE is about 15 for a company growing at a 30% clip. A very cheap growth stock indeed.

  • Report this Comment On February 29, 2012, at 10:50 AM, benivanoff wrote:

    So, you're saying, Rick, that yesterday the investors were throwing good money after bad buying up this stock like there was no tomorrow, and then this morning they all woke enlightened that Sodastream business model is inherently faulted and decided to see their shares at any cost?

    Call me naive, but this doesn't seem like a plausible explanation of what we're seeing this morning.

    A more paranoid, but realistic cause of the phenomena we're seeing I would contribute more to another good and sound example of institutional machinations on stock market at the expense of individual investors -- I'm not seing any other explanation to Sodastream losing over 15% of its value on outstanding report whereas STEC is gaining over 6% on a very challenging one with practically no light in the end of their tunnel.

    Any thoughts here?

  • Report this Comment On February 29, 2012, at 12:17 PM, sikiliza wrote:

    @ benivanoff

    I wouldn't go as far as to say manipulation, but this is a classic example of the stock's low float working against it. With a float that's so light, all it takes is a little pressure to take it down.

    Daniel Birnbaum, the CEO, seems like a reasonable fellow, great experience with Nike and Pillsbury and a Harvard education to boot. That said, he lacks in one crucial strength for leaders at all levels - his communication skills are less than par for the course and he could do better to express enthusiasm and sense of strength on those conference calls. It may be his character and if so, then they need strong PR+IR teams to counter the CEOs blase communication style.

    One last thing, they should consider a 3:1 or a 2:1 stock split - increase the float while still leaving the price within reach of institutional investors.

  • Report this Comment On February 29, 2012, at 12:43 PM, benivanoff wrote:

    @sikiliza

    Agreed on all points (light float, CEO needs to know and be able to sell the company's direction to investors, a split wouldn't be out of place here).

    However, still not discounting some institutional interplay here -- eventually it all tracked down to JPMorgan analyst comments, but let's go back to SODA's brother in arms, everybody loves so much to disassociate them from -- GMCR's results were also based mostly on their consumables sales. If that's a bad thing, then how come everybody (including institutionals) loved it so much? Something just doesn't add up here...

  • Report this Comment On February 29, 2012, at 3:07 PM, sikiliza wrote:

    @benivanoff

    I just realized that the stock is doing 10X average volumes today meaning that the HFT crowd is definitely in on this one. The fact that Herb Greenberg and Cra(argh)mer have been bashing the stock doesn't help either and I am sure JPM, like you mentioned, certainly has some motives other than that of increasing investor return.

    I am bullish on the stock in the medium term and will certainly buy some more if the price gets down to my cost basis or lower.

  • Report this Comment On February 29, 2012, at 3:33 PM, benivanoff wrote:

    @sikiliza

    The stock is indeed uncharacteristically active, not moving significantly up despite that -- something that keeps me puzzled, too.

    Unfortunately, currently it is already ways above my cost basis, so I'm going to have to sit on it for a few days till the dust settles down.

    Thank you for sharing with me your observations.

  • Report this Comment On February 29, 2012, at 8:32 PM, benivanoff wrote:

    ...and oh, by the way, Rick, I'm not saying that we expect you to have a crystal ball, but since you were the one recommended us buying this stock the other day (http://www.dailyfinance.com/2012/02/26/3-predictions-for-thi... wouldn't you expect us, in return, to take your opinion in this article with a good grain of salt?

    Again, nothing personal, I'm just saying that I'm seeing this analysis as steering us, decent hard-working people, in the wrong direction -- the reason the stock fell in my opinion is institutional investors' games with the general public, which they unabashedly see as a source of their well-being, distorting the very idea of capitalism, and NOT the fact that Sodastream sold more consumables than machines.

    I'm not a conspiracy theorist, but only a blind wouldn't see that there were other interests at stake here than the viability of the company and their business.

    I didn't write the Emperor's New Clothes tale -- it was written only about 300 years before me.

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