SodaStream or Coca-Cola: What Would Warren Buffett Buy Today?

SodaStream is likely going to be a better stock than Coca-Cola over the next decade, and it's adopting some very "Buffett-friendly" characteristics that might make the Oracle of Omaha think twice about which he'd buy today.

Apr 19, 2014 at 9:00AM

Coca Cola Buffett Ko Michael Pugh

Warren Buffett with Coca-Cola CEO Muhtar Kent at Coke shareholder meeting. Source: Coca-Cola/Michael Pugh.

Berkshire Hathaway Chairman and CEO Warren Buffett is often associated with Coca-Cola (NYSE:KO). His relationship with the company goes back to the late 1980s, when he began buying shares. He bought some 14 million shares in 1988, for $592 million. Today, Berkshire holds 400 million Coca-Cola shares, more than 9% of the company. Berkshire is -- by nearly double -- the largest shareholder, and Buffett easily the best-known. The thing is, Buffett hasn't actually bought any shares of Coca-Cola in more than a decade -- actually closer to 15 years. While this is a testament to Buffett's steadfast buy-and-hold mentality, the question is: Would Buffett buy Coca-Cola today, or would he buy home soda-maker upstart SodaStream (NASDAQ:SODA)

On the surface, it sounds like an easy call that Buffett would "buy American," as he famously called for us all to do during the market collapse in 2008 and 2009, and stick with Coca-Cola, and not the Israeli upstart in SodaStream. However, I don't think that's necessarily the case, all things considered. Let's take a closer look, and see what we can learn.

Looking for value, but also looking for a path to growth
Buffett is often miscalled a "value" investor. And while he is steadfast about buying at reasonable prices and values, it sometimes gets overlooked that Berkshire Vice Chairman and partner Charlie Munger's influence on Buffett led him to revise the approach that he learned from Benjamin Graham. 

Graham was known to look for "cigar butts," i.e., companies that were cast aside, but like a cigar butt with one or two puffs left in them, they still had some hidden value remaining. Munger's influence is largely credited with Buffett's shift from just looking for hidden value to, more importantly, looking for companies with strong advantages that would lead to predictable future earnings for years. Buffett said it best himself: "It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price." 

Coca-Cola has been an amazing investment for Berkshire, returning more than 2,500%, including dividends, on that first buy back in 1988. SodaStream, however, has handily outperformed Coke since its IPO in November 2010:

KO Total Return Price Chart

KO Total Return Price data by YCharts.

As you can see, it's also been wildly volatile, having twice achieved more than a 200% return only to fall back to earth. The most recent tumble was a product of what looked like falling flavor syrup sales in the summer and fall, and then a mixed holiday earnings report. Demand was strong, but SodaStream seemed to struggle to meet that demand, wasting resources to divert inventory from one region to another and paying a lot of money for repackaging merchandise meant for one country in new packaging suited to its new destination. 

Bad news is good news
The good news? Holiday demand was strong, and management seems to have learned what it needs to do to better meet demand going forward. Additionally, Coca-Cola's decision to get in bed with Keurig Green Mountain is a strong positive indicator for SodaStream. While some say this increased competition is bad, it's really not at all. When the biggest player in your business follows your lead, chances are you're on to something big. 

Additionally, SodaStream's position has never been one to compete against Coke at its own game. Coca-Cola isn't coming into this with the same value proposition as SodaStream, which largely talks about the cost advantages. Coke's approach is almost sure to be similar pricing to its bottled beverages, just with the flexibility to make them at home, versus lugging gallons of soda home from the store. SodaStream's lower-price business should continue to thrive, while Coke's entering the market will drive even more consumer interest. 

You want to see -- in one table -- why Coca-Cola is getting into the home soda business?

KO Revenue (TTM) Chart

KO Revenue (TTM) data by YCharts.

Simply put, there's predictable growth happening in SodaStream's business, and the traditional soda business is in decline in the United States.

So there's growth. What about a fair price?
Here's how Coca-Cola's and SodaStream's price-to-earnings ratios compare -- both forward and trailing -- since SodaStream's IPO:

SODA PE Ratio (Forward) Chart

SODA P/E Ratio (Forward) data by YCharts.

SodaStream has reached a point where it's as cheap as Coca-Cola by this metric. Sure, SodaStream in many ways "earned" the beating that the stock has taken, as management hasn't exactly excelled at leveraging the growth potential of the business with the recent missteps over the holidays. But as it's a young, growing company, investors have a tremendous opportunity to buy a very small company very close to the beginning of its growth story. 

Final thoughts: Would Buffett really buy SodaStream?
Whatever Buffett would ultimately do, SodaStream's nearly $800 million market cap means it wouldn't really move the needle for Berkshire, but Buffett has said in the past that Berkshire's size has limited the opportunities he could take advantage of. He's gone so far as to state that he could get better rates of return with much smaller amounts of money. As individual investors, we are in exactly that position. 

Is SodaStream a fair company at a great price, or a great company at a fair price? The following disclosure should make it pretty clear what I think -- I own shares myself. Profitable, growing, and priced as if it will grow at the same rate of a company that's more than 200 times larger, SodaStream sounds like a stock to buy today, and hold for the next 26 years. I wouldn't be surprised to hear Buffett agree. 


3 stocks to own for the rest of your life
As every savvy investor knows, Warren Buffett didn't make billions by betting on half-baked stocks. He isolated his best few ideas, bet big, and rode them to riches, hardly ever selling. You deserve the same. That's why our CEO, legendary investor Tom Gardner, has permitted us to reveal The Motley Fool's 3 Stocks to Own Forever. These picks are free today! Just click here now to uncover the three companies we love. 


Jason Hall owns shares of Berkshire Hathaway, Coca-Cola, and SodaStream. The Motley Fool recommends Berkshire Hathaway, Coca-Cola, Keurig Green Mountain, and SodaStream; owns shares of Berkshire Hathaway, Coca-Cola, and SodaStream; and has options on Coca-Cola. Try any of our Foolish newsletter services free for 30 days. 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.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.

Compare Brokers