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SodaStream Still Looks Cheap, Despite the Stock's Rally This Week

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SodaStream (NASDAQ: SODA  ) surged nearly 12% on Wednesday after news broke that the at-home soda company may sell as much as a 16% stake in its business to a "strategic entity," according to Reuters. Soda-pop stars including PepsiCo  (NYSE: PEP  ) and Dr Pepper Snapple Group, along with Starbucks (NASDAQ: SBUX  ) , are among those rumored to be interested in the deal.

Despite the surge in the stock yesterday, I believe shares of SodaStream still look reasonably priced, trading around $40 apiece. This is particularly true given the stock's PEG ratio of 0.70, which is significantly lower than the Household Durables industry average of 1.57. Here are two reasons the stock could go higher from here.

Room to grow
SodaStream operates in a lucrative and fast-growing market. This category looks so promising, in fact, that soda giant Coca-Cola (NYSE: KO  ) jumped in earlier this year by paying $1.25 billion for a 10% stake in Keurig Green Mountain (NASDAQ: GMCR  ) . Before this 10-year agreement between Coke and the Keurig coffee company, Green Mountain wasn't one of SodaStream's direct competitors.

However, with Coca-Cola as a strategic partner, Keurig Green Mountain is now on track to launch its "Keurig Cold" beverage system next year. Not surprisingly, Green Mountain's new carbonated drink maker will feature Coke-branded beverage kits so users can make their favorite Coca-Cola products from the comfort of their homes. 

We knew it wouldn't be long before competitors starting piling into this space. This is especially true if you believe SodaStream's estimates that the U.S. at-home soda market potential is $40 billion. As fellow Fool Ted Cooper points out, this number "assumes at-home soda machines penetrate 100 million out of 115 million U.S. households." While that level of penetration is unlikely, there's clearly strong demand for at-home carbonation machines today.

First mover advantage
Not only does SodaStream operate in a growing market, but it also has a first-mover advantage. At the Motley Fool, we believe true Rule Breaker stocks possess a first-mover advantage in which they are the innovator that initially uncovers a niche market. It's been four years since SodaStream hit the public market, but the company finally has the attention of beverage giants like Coca-Cola and Pepsi.

Coke and Pepsi dominated the U.S. soda market before SodaStream hit the scene. But SodaStream was the first company to unlock the potential of the do-it-yourself soda market. Last year, SodaStream sold a record 4.4 million of its home soda makers, bringing the company's installed base to 7 million. To be fair, SodaStream's U.S. sales are slowing. The company forecasts sales to grow just 15% this year, down from a growth rate of 29% in 2013. 

Nevertheless, SodaStream's future still looks bright. With SodaStream machines in as many as 7 million homes globally today, the company and its products are already a brand consumers know and trust. Looking ahead, a strategic tie-up between SodaStream and Starbucks seems to make the most sense. Pepsi may seem like the obvious choice because of Coke's recent deal with Keurig Green Mountain. However, Pepsi reportedly has a deal in the works with another fizzy drink maker known as Bevyz, according to 

Starbucks, on the other hand, has been testing flavored sodas in a handful of its stores in Atlanta and Austin, Texas. Therefore, investing in a company such as SodaStream would be an obvious fit. For SodaStream, teaming up with Starbucks would significantly increase the company's distribution network.

Drink to this
With Sodastream's stock trading around $40 a pop today, shares still looks cheap despite the stock's rally yesterday. It's still early in the game for the at-home soda market, and SodaStream is well positioned in this market going forward.

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Read/Post Comments (2) | Recommend This Article (1)

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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 April 17, 2014, at 8:46 PM, pac1investor wrote:

    All these news of SODASTREAM selling stakes to any of these big three---Pepsi, Dr Pepper, Starbucks---are sure hopes and dreams for big time SODA investors. Notwithstanding, I instead expect Keurig Green Mountain (GMCR) the Company that will emerge to acquire and swallow SODA. Instead of sleepless nights, and splitting brains and hair outsmarting SODASTREAM's high tech but inexpensive home carbonating machines (and to avoid potential copyrights infringements), best compelling route for GMCR to produce home carbonated machines (sole reason for 10% stake partnership with CocaCola) is to acquire SODASTREAM, period!

  • Report this Comment On April 24, 2014, at 7:17 AM, suthanalley wrote:

    Stock price of the Sodastream fell as the investors feared that Coca-Cola's entry into the home beverage market would stifle growth prospects for Sodastream but soon it come up. In order to view more follow

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Tamara Rutter

I've been an analytical writer for The Motley Fool since 2011. I cover the sectors of Consumer Goods, Technology, and Industrials. Connect with me on Twitter using the handle, @TamaraRutter -- I'd love to hear from you!

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Related Tickers

9/1/2015 3:59 PM
SODA $14.37 Down -0.87 +0.00%
SodaStream CAPS Rating: **
GMCR $55.10 Down -1.50 +0.00%
Keurig Green Mount… CAPS Rating: **
KO $38.75 Down -0.57 +0.00%
Coca-Cola CAPS Rating: ****
PEP $91.33 Down -1.60 +0.00%
PepsiCo CAPS Rating: *****
SBUX $53.50 Down -1.21 +0.00%
Starbucks CAPS Rating: ****