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It May Be Time for Some Investors to Sell SodaStream

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I still like SodaStream (NASDAQ: SODA  ) . It's in the Prosocial Portfolio I manage for because of its disruptive, eco-friendly attributes, as well as its growth potential. There's a SodaStream machine on my kitchen counter, and I use it every evening for some enhanced sparkling water. I think SodaStream's ticker symbol is adorable and accurate; nobody says "soft drink" anymore. However, I'm about to say something that might be considered scandalous, given my bullish attitude.

Some investors might want to sell SodaStream now.

Don't buy into buyout hype
As of June 6, SodaStream had streamed a 110% return into the Prosocial Portfolio. Part of me would like to do the happy dance, cheer, and maybe even gloat. Take that, haters!

Then the part of me that rains on parades, including my own, comes into play. SodaStream's recent surge has been bubbled up by speculation. That's no reason to buy, and for certain investors, it may be the time to sell.

You may have heard rumors that rivals Coke (NYSE: KO  ) or Pepsi (NYSE: PEP  ) are considering acquiring SodaStream. My Foolish colleague Rick Munarriz, a SodaStream fan himself, has revealed why he thinks the rumors are ridiculous and nonsensical.

His points are sound. After all, SodaStream has been extremely aggressive in taking on the beverage behemoths. Earlier this year, SodaStream's Super Bowl ad spot told the tale (and ended up watered down for broadcast -- the original version of the ad, which did not air, specifically targeted Coke and Pepsi for their container-wasting ways ).

Rick also pointed out that buying SodaStream would completely p.o. Coke's bottlers, for example. Helping wean the world off bottled beverages doesn't quite make for cozy relations.

Then again, there is that well-known saying: "Keep your friends close. Keep your enemies closer." It wouldn't be the first time a company bought an upstart presenting a thorn in its side.

If consumers truly do start exhibiting different behavior, how the bottlers feel will be beside the point. Industry disruption does not stop for hurt feelings.

Sure, a SodaStream purchase by the soda giants would cannibalize soda sales. Then again, soda sales haven't been doing so well here lately to begin with, which explains why heavyweights have been coming up with beverage alternatives and buying other rivals.

Remembering the buy thesis
All right, obviously it's interesting to speculate on whether such an event might come to pass, but it's not worth the gamble to bank on anything. Speculating on takeover rumors is never a good idea for investors, despite the fact that gambles occasionally work out.

Granted, I didn't complain much when VF Corp. acquired Timberland , my first-ever purchase for the Prosocial Portfolio, leaving a generous return in its wake. It wasn't something I was hoping for, though, and it was bittersweet. I believed in Timberland's future when I bought, and didn't have any interest in whether it was a takeover target or not.

I also couldn't really complain when Starbucks, one of the stocks in the portfolio, took over Teavana, which was also in the portfolio. Could another of my real-money picks, Pepsi, sweep in and take over another, SodaStream? Who the heck knows, and I don't really care. A SodaStream takeover was never part of my original investment thesis.

Investor, know thyself
I'm just being honest: When you're sitting on a hefty return, it's time to ask the question. Can I stomach a significant fall from current highs? Some investors should ponder whether they should cut and run now. Being a long-term investor requires holding through ups and downs, and sometimes that can be incredibly hard to do.

I have great faith in the concept that high-quality companies should one day justify generous and even incredible returns, but stock returns predicated on rumors and speculation usually prove illusory in the short run. It can be sickeningly difficult to ride out the ups and downs. I'm not necessarily saying the stock's even that overvalued compared to mature Coke and Pepsi. It's just that there's a ton of emotion surrounding this stock right now.

Granted, if something jumps out at me that tells me SodaStream's business and outlook changes in negative ways, I will reveal that, too. For now, I'm keeping it in the portfolio and willing to ride this out. However, anyone who doesn't like roller coasters might want to take profits before sliding down the other side of the short-term trader, psychology-driven thrill ride. It's worth asking the question: How bad will I feel if the stock takes a nosedive in the near term?

SodaStream's carbonation technology sounds simple, but this razor-and-blade company offers an intriguing opportunity for growth that could very well disrupt the soda industry. The Motley Fool's premium report on SodaStream explains the opportunities as well as the risks in the company. The report comes with a year's worth of updates, so just click here to get started.

Read/Post Comments (4) | Recommend This Article (5)

Comments from our Foolish Readers

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 June 14, 2013, at 7:24 PM, TMFVelvetHammer wrote:

    Nice job, as always Alyce! Challenging ourselves and our stances is pretty important, dare I say Foolish, even?

    My thought is that the forward PE (~29) is high, but not unfamiliar territory or at nosebleed altitude for a fast-grower.

    SODA spent it's first six months as a public company well above 29, before investor malaise set in and it lulled to the mid-low 20's for the past couple of years.

    The key is going to be investor interest, I think. Short interest is increasing, so it's not unreasonable to think that positive news could result in a squeeze shooting shares higher. And to the contrary (I'm picking up all your parade-rainey habits) bad news could crush shares.

    But this will all be temporary if the company keeps executing they way it has. We just bought a machine, too. I love it!

    Jason H

  • Report this Comment On June 14, 2013, at 7:30 PM, Capivara wrote:

    His points are sound. After all, SodaStream has been extremely aggressive in taking on the beverage behemoths.

    They have been aggressive in their marketing, but they have been a model rational competitor in the sense that they haven't tried to take market share via an aggressive price war. On their last calls both KO andPEP talked about the importance of having a rational competitive environment. SODA has been about as well mannered a disruptive force as either could have asked for in that regard.

  • Report this Comment On June 14, 2013, at 7:52 PM, TheDumbMoney wrote:

    I hear you, though keep in mind Coke bought its largest North American bottler in 2010:

    This followed Pepsi buying its two largest bottlers:

    So this: "buying SodaStream would completely p.o. Coke's bottlers" is not entirely accurate. Coke and Pepsi both now have a lot of leeway, because they own their largest bottlers, at least in America.

    So the question really becomes: can they make more money the old fashioned way or can they raise margins using the Sodastream model?

    That said, I agree buying Sodastream simply makes no sense for them. It makes far more sense to do what Starbucks did with GMCR, and simply make a standardized portion of syrup. For that to really work, Sodastream needs a machine that integrates input of syrup with making the fizz. Coke and Pepsi care a LOT about standardized syrup content.

  • Report this Comment On June 16, 2013, at 1:41 AM, Realexpectations wrote:

    Every great company has gotta start somewhere

    Even the great ones fall eventually

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