Can SodaStream Bounce Back?

Last week didn't work out too well for SodaStream (NASDAQ: SODA  ) investors. Shares of the company that makes the beverage maker that turns water into soda fell nearly 16% after it posted disappointing quarterly results.

The culprits behind the slide are pretty clear.

  • Growth decelerated substantially in the United States.
  • Flavor unit sales rose a mere 7%, and actually slipped nearly 3% stateside.
  • SodaStream's revenue guidance is in line with expectations, but the same can't be said for the bottom line. In other words, we're looking at contracting net margins in the fourth quarter.

The news isn't necessarily as somber as this may seem to suggest. Revenue still climbed at a healthy 29% in its latest quarter, and those syrup bottles make up just one of the two blades in this razor-and-blades model. CO2 refills soared 34% during the quarter. Watching net margins dip in the third quarter -- and now forecast to slide again in the current quarter -- isn't great, but SodaStream is investing heavily in marketing and infrastructure to keep its growing popularity on track.

SodaStream should be able to bounce back. As long as it continues to increase its user base and these systems aren't merely being dumped in the attic next to the quesadilla maker and Foreman grill -- and that healthy 34% spike in carbonators suggests that folks continue to "get busy with the fizzy" -- investors should be fine in the long run.

Volatility comes with the territory. Pull up a chart on Green Mountain Coffee Roasters (NASDAQ: GMCR  ) . It's a master of caffeinated spikes and crashes. It has always managed to grow sales, but margins fluctuate based on the price of coffee beans, and the market was concerned about what would happen to growth after its K-Cup patents ran out late last year. SodaStream thankfully doesn't have the same kind of commodity swings as java, and naturally there's never been a patent on soda syrups. As long as their platforms continue to broaden their reach, it's hard to bet against either company.

Some pros don't see it that way. Stifel Nicolaus downgraded SodaStream last week -- from hold to sell -- and slapped a $40 price target on the shares. In other words, that analyst sees the stock falling another 24% beyond last week's drop.

Investors are unlikely to get a verdict right away. We now have to wait another three months to hope that SodaStream initiates an encouraging outlook for 2014. Skeptics will naturally want to see if flavor sales can bounce back or if U.S. sales growth continues to decelerate. However, there can always be positive catalysts to make things interesting along the way. SodaStream could line up some new soda flavor brands for its arsenal. It can introduce new ways to make the soda in the first place. Last quarter's report was a dud, but SodaStream isn't standing still.

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