SodaStream Crushes It (Again) ... but Is the Stock a Buy?

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Shares of SodaStream (NASDAQ: SODA  ) bubbled up more than 15% during intra-day trading Wednesday, after the company not only annihilated analysts' already-lofty expectations, but also raised its full-year 2013 guidance.

But with SodaStream now up more than 70% over the past year, including a 50% jump so far in 2013, what's an investor to do?

The numbers
SodaStream's second-quarter revenue increased 28.5% year over year to $132.4 million, while diluted earnings per share rose an even more impressive 33.3% to $0.60. For those of you keeping track, remember analysts were expecting earnings of only $0.57 per share on sales of $129.7 million.

Of course, it's hard to fault analysts for missing the mark when SodaStream keeps increasing its guidance.

Remember, in Q1, management raised their revenue and earnings forecast by another 2%, telling investors to expect full-year sales and earnings growth of 27% and 20%, respectively.

Sure enough, this quarter was no different, as strong unit sales growth for soda makers, gas refills, and flavors of 18%, 30%, and 25%, respectively, allowed SodaStream management to feel comfortable increasing their full-year 2013 revenue and earnings guidance. Now, they say, we should look for 30% sales growth in 2013 to just over $567 million, and 23% net income growth to around $54 million.

All in all, when we zoom out a bit, that represents solid progress for SodaStream toward achieving their previously outlined goal of $1 billion in annual sales by 2016, especially when we remember the current gains were achieved in spite of strong comps last year fueled by the launch of SodaStream's products at Wal-Mart here in the United States.

In fact, this growth also flies in the face of naysayers' concerns that SodaStream is a fad, and seems to indicate that more and more American homes are opening up to the idea of ditching traditional soda from the likes of Coca-Cola and PepsiCo (NYSE: PEP  ) .

The worries
Then again, that doesn't negate the possibility of competition down the road from other at-home beverage enthusiasts, the list of which most recently grew to include Green Mountain Coffee Roasters (UNKNOWN: GMCR.DL  ) . Remember, reports surfaced earlier this month showing the Keurig-creator recently applied for a trademark for the word "Karbon," which will apparently describe Green Mountain's version of a machine "for the production of cold water soda, still, carbonated, and sparkling beverages."

Now, that doesn't mean Green Mountain's soda-maker will come to market anytime soon, and even then it would have its work cut out for it in trying to permeate SodaStream's home turf -- something with which other competitors have had little luck to date -- but who better than the company behind the popularization of at-home coffee makers to eventually slow SodaStream's rapid rise?

That's also not to mention other worrisome reports that SodaStream management may have been quietly trying to sell the company over the past few months to no avail, which not only calls into question their resolve in standing behind the company for the long term but also makes you wonder why no suitor has stepped forward to acquire the entire business.

Of course, the same report also pointed out Pepsi had wanted only to buy SodaStream's highly profitable CO2 refill business and not the appliance itself -- but can you blame them? As I pointed out in June, it simply wouldn't make sense for Pepsi to buy an entire product line that would cannibalize its core canned and bottled product sales, while at the same time angering the bottlers that rely on its enormous existing business to sustain their own operations.

Buy high, sell higher?
But despite the possibility that management may have been trying to sell themselves short, perhaps this solid report will both strengthen their resolve and encourage long-term investors that SodaStream is here to stay.

And even though the stock is up big so far in 2013, it's also worth noting the company has been growing into its valuation nicely, as shares currently trade for under 31 times last year's earnings and just over 20 times next year's estimates, which I think is a fair premium given SodaStream's growth.

In the end, then, I see no reason SodaStream won't continue to handsomely reward patient long-term investors who buy now.

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Read/Post Comments (4) | Recommend This Article (6)

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 July 31, 2013, at 10:52 PM, heliskiier wrote:

    Ok, this article clearly outlines two things that are truly non-issues, if not 3. I find nothing in this article's risks to the company to be even close to valid. People pay way more than 29x P/E for this kind of growth.

    GMCR applied for the patent a long time ago. That's not new news. Even they say that they patent stuff they never intend to use. Companies apply for patents all the time just in case the opportunity ever arrives. GMCR doesn't need to get into a fight with SODA. They trade in tandem.

    As for the buyout rumor, that was put up by an Israel based news outlet that had no facts (or even rumors) and couldn't even quote a "source close to the company." Again totally bogus.

    As for SODA trying to sell the company. Come on folks! If you're growing at this rate it's gonna take a lot more than a 30% premium to get that deal done. Why sell when you're growing leaps and bounds. Earnings today proved it.

    Short sellers have a lot of tricks in their bags to keep from losing their shirts. They're running out of ammunition on this one and would be best served to close those positions and look for another great short like JCP (which will be BK in less than 5 years) before another big partnership deal gets announced by SODA. It's only a matter of time before that happens.

    Don't believe everything you read from random stories or Wall Street gurus. Most of that stuff is generated to take your money.

    Best all. Invest the way you see fit. Don't let anyone tell you otherwise, unless a truly REAL even changes your personal opinion.

  • Report this Comment On July 31, 2013, at 11:00 PM, heliskiier wrote:

    BTW, I'm on the JCP 2015 8 puts so I can watch this sucker go out of business. I expect that one to come out very nicely. JCP at .02 will do the trick. Smallish position, but worth the small risk involved.

    There's little upside besides the usual positive news to bump JCP, but the trend is firmly in place and they have no cash and even worst Q over Q disaster earnings. You gotta have cash to stay in business. Simple. Even their suppliers can't get credit to service them anymore. That's a trade I can sleep well on. Limited exposure, limited risk. No need for a stop on this one.

  • Report this Comment On July 31, 2013, at 11:03 PM, heliskiier wrote:

    And I've been on those 2015 puts since I could buy em for almost free. Really nice gain so far, but I'm not closing that position anytime soon. Maybe I'll roll down to 6 or 4 and take some profit. Maybe not.

  • Report this Comment On July 31, 2013, at 11:07 PM, heliskiier wrote:

    One more comment. The article written by this solid Fooler is absolutely dead on until he outlines the risks. I'm a call holder since 40. Had to keep taking profits and get better entries. The recent action was a playground decision to open the calls and reap the rewards.

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