SodaStream: Does an Acquisition Really Matter for Investors?

SodaStream (NASDAQ: SODA  ) has rallied 15% since April 16 following a slew of acquisition-related rumors. Unfortunately, no hints of such an acquisition were made during PepsiCo's (NYSE: PEP  ) , Dr Pepper Snapple Group's  (NYSE: DPS  ) , or Starbucks'  (NASDAQ: SBUX  ) quarterly conference calls. Fortunately, SodaStream doesn't need it!

Rumors galore
On April 16, the daily Israeli newspaper Calcalist reported that SodaStream was in talks to sell a 10% to 16% stake of its business for $52 a share. Reportedly, PepsiCo, Dr Pepper Snapple, and Starbucks were the companies interested, or rather, one of the three companies was in negotiations.

The following day PepsiCo reported earnings, with the company beating expectations on the top and bottom lines. PepsiCo reported that soft drink volume fell 1% but that organic revenue in emerging markets increased 9%. However, the one thing that wasn't mentioned in any respect was SodaStream, thus putting an end to rumors of it being the acquirer.

Next, Dr Pepper Snapple reported earnings on April 23 and also beat expectations. Like PepsiCo, Dr Pepper Snapple's quarter was solid, growing revenue by 1.4% and increasing margins due to declining costs. However, also like PepsiCo, not one mention of SodaStream was made; therefore, cross Dr Pepper Snapple off the list as a near-term acquirer.

Then, within hours of Dr Pepper Snapple's quarterly report, Israeli publication site Globes reported that Starbucks was in advanced talks to purchase 10% of the company for a 30%-plus premium. While investors reacted positively to the news, it seems quite convenient given PepsiCo and Dr Pepper Snapple had already reported earnings with no mention of SodaStream.

Finally, to end the saga, Starbucks reported earnings on April 24, and, you guessed it, no mention of SodaStream. While the company did see an 8.7% increase in year-over-year revenue to complement a 130-basis-point boost to its operating margin, the company gave no hints of advanced acquisition talks nor was its capital expenditures guidance noticeably higher. In fact, the only news was that Starbucks is now done with alcohol testing and is now prepared to begin selling beverages with alcohol.

Now what?
SodaStream is no stranger to acquisition rumors, which have surrounded the company for the better part of three years. For many, SodaStream is considered a fad, which is one reason why nearly half of its float is shorted. Hence, some believe a major partnership or acquisition would solidify SodaStream as a company that's here to stay.

Nonetheless, it's worth noting that regardless of an acquisition, SodaStream doesn't need Starbucks, PepsiCo, or any other partner. Essentially, it's performing just fine, as the fundamentals suggest. 

This is a company that grew revenue by 29% last year, yet its stock has fallen 18% in the last 12 months. Also, as I noted in a previous article, "SodaStream sold 1,542 soda maker starter kits in its fourth quarter, which was a 39% increase over the year prior. And in a survey of 167 SodaStream kit owners, conducted by [Whitney] Tilson, 72% of participants claimed to use it at least one time per week."

Therefore, consumers are not only buying SodaStream soda makers but are using those same devices regularly to make beverages. Furthermore, SodaStream is a European story (growing by 40% last year), a region where the company continues to expand its presence.

Final thoughts
In comparison to other beverage companies, SodaStream is still small, with annual revenue of just $562 million. But at 22 times earnings, it's significantly cheaper than Starbucks and comparable to PepsiCo and Dr Pepper Snapple, while growing much faster.

Therefore, from a pure valuation stance, SodaStream is cheap and doesn't need to be acquired in order to present shareholder value. Certainly, a large acquisition would go far in boosting sentiment, but in looking at the fundamentals alone, SodaStream is a good investment -- maybe not for big beverage companies, but definitely for retail investors.

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Brian Nichols

Brian Nichols is the author of "5 Simple Steps to Find the Next Top-Performing Stock: How to Identify Investments that Can Double Quickly for Personal Success (2014)" and "Taking Charge With Value Investing (McGraw-Hill, 2013)". Brian is a value investor, but emphasizes psychology in his analysis. Brian studied psychology in undergrad, and uses his experience to find illogical value in the market. Brian covers technology and consumer goods for Motley Fool. Brian also updates all of his new and current positions in his Motley Fool CAPs page. Follow Brian on Twitter and like his page on Facebook for investment conversations and recent stories.

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9/2/2015 10:49 AM
SODA $14.44 Up +0.07 +0.49%
SodaStream CAPS Rating: **
DPS $75.81 Up +0.40 +0.53%
Dr Pepper Snapple… CAPS Rating: ****
PEP $91.42 Up +0.79 +0.87%
PepsiCo CAPS Rating: *****
SBUX $54.09 Up +0.59 +1.10%
Starbucks CAPS Rating: ****