SodaStream (NASDAQ:SODA) underperformed the market in 2013, with the stock rising sharply during the first half of the year only to give up almost all of its gains by year-end. Even as the home carbonation system maker's opportunity to pull customers away from Coca-Cola (NYSE:KO) and PepsiCo (NYSE:PEP) remains as compelling as ever, SodaStream faces challenges in continuing to build sales and convince more of its customers to commit to the long-term value proposition from its systems.

One particularly frustrating aspect of SodaStream's 2013 was that the company largely made good on its promises to produce solid growth. The company has consistently topped analyst estimates for profitability, and rising revenue not only from soda-maker sales but also from certain consumables has been promising. Yet investors seem uncertain about a potential exit strategy for the company after PepsiCo's rumored buyout offer at midyear last year turned out to have no substance. Let's take a closer look at SodaStream's prospects for 2014.

Stats on SodaStream

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Source: Yahoo! Finance.

What's next for SodaStream in 2014?
As you can see above, SodaStream still has many analysts optimistic about its future, with target prices more than 50% above where the shares currently trade. That's much more attractive than the roughly 10% upside potential from Coca-Cola and PepsiCo, reflecting the sluggishness that the two beverage giants have seen in their carbonated drink businesses lately.

Slowing growth rates created a troubling trend that hit SodaStream hard last year. After solid financial performance throughout much of the year, SodaStream's third-quarter results sent shares plunging as the company missed revenue projections. Sales growth of 29% based on a 27% jump in starter-kit sales and a 34% rise in CO2 refills wasn't enough to keep investors bullish on SodaStream's prospects, as they instead worried about the mere 7% rise in flavor sales and the year-over-year decline in earnings.


Image source: SodaStream.

Yet SodaStream's potential remains enormous. A Harris Interactive poll conducted on behalf of the company found that almost half of those who responded said they'd enjoy getting a SodaStream as a gift. Compared to the less than 1% of U.S. households that actually have a SodaStream right now, it would take only a small fraction of those interested in having a machine to actually buy one in order to make a material difference to sales growth in the future.

Moreover, SodaStream needs to keep emphasizing its health advantages over Coca-Cola and PepsiCo products. Both of the beverage giants have faced increasing pressure about obesity and other health impacts from sugary soft drinks, while SodaStream's flexibility in letting owners change syrup levels or make spritzers from juice or other healthy drinks gives it a huge competitive advantage. Efforts like its GreenSanta campaign can highlight not only beneficial health impacts but also the environmental advantages of SodaStream over products from Coca-Cola and PepsiCo.

SodaStream's valuations are extremely attractive given current projections on likely growth for the company. Unless you believe that holiday sales are likely to come in well below expectations, SodaStream stock looks as if it has plenty of room to move higher in the months to come.

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Fool contributor Dan Caplinger has no position in any stocks mentioned. You can follow him on Twitter @DanCaplinger. The Motley Fool recommends and owns shares of Coca-Cola, 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.

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