This isn't the way SodaStream (NASDAQ:SODA) probably thought it would go.
Shares of the company behind the namesake beverage system that transforms tap water into sparkling soda have closed lower in seven of the past nine trading days. At a time when market leaders are hitting fresh highs, SodaStream's stock closed yesterday within 6% of a fresh 52-week low.
It doesn't seem fair. SodaStream's handily beaten Wall Street's profit targets in its three most recent quarters. It's still a speedster. Expectations for the holiday quarter remain solid, with analysts targeting a 78% increase in earnings per share on a 29% top-line pop.
Why has the stock been tumbling since rumors of a PepsiCo buyout seven months ago fizzled out? PepsiCo quickly shooting down the speculation didn't help -- and the chatter never really made sense -- but that should have only taken the stock down to where it was before the buzz began.
Its most recent quarter did disappoint when it came to flavor sales. Revenue for its soda flavors rose a mere 7%, actually declining in the United States. However, even there, the 27% spike in soda makers and 34% surge in CO2 refills point to continuing popularity for the platform.
SodaStream is cheap. The stock is now fetching less than 15 times this new year's projected profitability. It's growing faster than that, and that's with adoption rates continuing to improve across key geographical markets.
Investors still somehow want SodaStream to prove itself, and there may be several ways for that to happen this year.
- SodaStream can continue to blow past Wall Street's income estimates, meaning that the stock is now fetching a lot less than 15 times this year's eventual earnings.
- Fears of competitors storming the market have yet to pan out, and another year of vanquishing those demons will only widen SodaStream's lead.
- Accelerating growth in flavor sales would be a definite stock catalyst, and a big driver there may be the single-serve SodaCaps that rolled out stateside late last year.
- SodaStream has already lined up a murderers' row of beverage brands as flavor partners, but there's always room for more variety to validate the model and woo new customers.
There's probably more that can go right than wrong for SodaStream, but it's going to have to start hitting some of these mile markers if it wants to drive its way back to being a market darling.
Longtime Fool contributor Rick Munarriz owns shares of SodaStream. The Motley Fool recommends and owns shares of PepsiCo and SodaStream. 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.