Buying More SodaStream Despite Syrup Shock

This stock has gotten more flavorful for bargain hunters.

Jan 2, 2014 at 12:39PM

It's hard to find stocks that look particularly undervalued in today's bullish -- and arguably fizzy -- market. However, SodaStream International(NASDAQ:SODA) (NASDAQ:SODA) is refreshingly cheap following investors' sudden, and probably temporary, burst of pessimism. That's why I'm adding even more shares to the real-money Prosocial Portfolio I manage for

I bought shares of Israel-based SodaStream for the second time in October. However, the stock tanked shortly afterward, as many investors fretted about disappointing quarterly results and panicked about weak syrup sales and lower revenue guidance from the maker of home soda-producing machines.

Like many investors, I was bummed that I didn't get shares of SodaStream at the ensuing cheaper price. But since the situation hasn't changed my overall long-term investment thesis, I'm going to add more shares to the portfolio.

Getting over a taste of pessimism
The Prosocial Portfolio's philosophy -- finding solid long-term companies that take socially responsible elements into consideration -- reduces the number of choices as well. Even though the universe of such stocks is expanding rapidly, there are still many companies that don't strongly reflect these qualitative values for the long haul.

SodaStream's fall from grace illustrates overall investor pessimism about this company, which still has plenty of room for growth in consumers' lineup of useful home gadgets.

Even though investors found a lot to dislike in the relatively young company's third-quarter results, there's not much to indicate a reason to panic. Revenue increased 29% to $145 million. Net income dipped negligibly to $16.4 million from $16.8 million on a quarter-over-quarter basis.

With the exception of the Asia-Pacific region, revenue grew in all of SodaStream's geographies. The company is also moving into plenty of other flavors on its own and through partnerships, and these may not have gotten completely on customers' radars yet. In addition, another important part of its business, CO2 canister refills, increased by 34% on a year-over-year basis.

More stores, more syrups
Whether SodaStream's core self-branded syrups need improvement is definitely a concern. However, the company has established relationships with well-known brands like Ocean Spray and Mondelez International's Country Time Lemonade, Crystal Light, and Kool-Aid. It's also trying to attract the party-hearty crowd with its Happy Hour line of cocktail mixers: cosmopolitan, margarita, pina colada, and strawberry daiquiri.

SodaStream also hits on America's interest in healthy alternatives, since its products focus on sweeteners like cane sugar and sucralose, the latter of which is often seen as a better alternative to other diet sweeteners.

And SodaStream creates plain old bubble water, too. Its business also includes CO2 canister sales; CO2 makes the water bubbly. These canisters are available for purchase, and if consumers exchange their spent canisters they get discounts, which fits into both the environmentally minded reduction of waste as well as consumers' budget consciousness.

Another bullish aspect of SodaStream is its increasing presence in major retail stores such as Wal-Mart, Bed Bath & Beyond, Staples, Target, and Macy's.

Interestingly, according to management on the third-quarter conference call, Best Buy included SodaStream in its advertising of its own volition, and Wal-Mart has called it a momentum brand.

Running down a few risks
For many first movers, imitation may be a form of flattery, but it's also a form of extreme risk, especially coming from well-established companies. Green Mountain Coffee Roasters, which provides the Keurig single-serve coffee machine, filed an application this summer for a trademark for the name "Karbon," a product widely expected to be a direct competitor to SodaStream's do-it-yourself soda machines.

Beverage giant Starbucks plans a product called Fizzio, which similarly carbonates beverages. Investors are probably forgetting, though, that the Fizzio appears to be intended for the institutional market at first, not the household market, although it could branch out into other areas. 

So far, there hasn't been any movement on the make-your-own soda front from either of these big-name companies in terms of actually getting a product on the market. SodaStream still has an edge with an existing product that's already on many major retailers' shelves, increasing distribution and brand recognition. Still, there is certainly the risk that this attractive, nascent niche will be targeted by biggies with big pocketbooks.

Another more logical risk to keep an eye on is SodaStream's inventory, which increased by 40.3% on a year-over-year basis in the third quarter. When inventory increases at a faster rate than sales, it can indicate a buildup of unsold products. SodaStream attributes the increase to the acquisition of its Italian business and business growth. This will be a good area to revisit going forward, with particular emphasis on the holiday season.

Getting a refill
Growth stocks often get slammed when investors get any impression of negative tidings. But when you still feel strongly about the company's future, this is one of the best times to buy or add to your position.

I don't always anchor on price when I purchase stocks; some of the stocks in the Prosocial Portfolio strike me as good buys regardless, as long as investors believe in the long-term growth story and plan to hold for long periods of time. Stock-price seesaws and changing investor sentiment can sometimes cause fears about whether fundamental businesses are well positioned for the very long haul or not.

Like many investors, I'd certainly prefer to get good deals when I can find them. Right now, I'm finding a good deal in SodaStream.

Gunning for growth
They said it couldn't be done. But David Gardner has proved them wrong time, and time, and time again with stock returns like 926%, 2,239%, and 4,371%. In fact, just recently one of his favorite stocks became a 100-bagger. And he's ready to do it again. You can uncover his scientific approach to crushing the market and his carefully chosen six picks for ultimate growth instantly, because he's making this premium report free for you today. Click here now for access.

Alyce Lomax owns shares of Starbucks. The Motley Fool recommends Green Mountain Coffee Roasters, SodaStream, and Starbucks. The Motley Fool owns shares of SodaStream, Staples, and Starbucks. 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.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't 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.

©1995-2014 The Motley Fool. All rights reserved. | Privacy/Legal Information