Hedge fund manager Whitney Tilson told the Value Investing Congress back in April that he believes that SodaStream (SODA) is not just a passing fad. He notes that the company could take advantage of the large global demand for its products. His opinion is that despite the high P/E ratio, the CO2 business  alone is at a value equal to the present market capitalization, which means that investors, if they buy the stock, get the rest of the businesses for free.

SodaStream's CO2 business alone is vey strong, and doesn't include its syrup sales, nor its machine sales. Tilson thinks that the CO2 business is very strong for SodaStream because it offers the company an "economic moat." That's because CO2 cartridges require expertise.

The SodaStream/Starbucks deal speculation
There is speculation that the company is in advanced talks with Starbucks (SBUX 0.29%) about the coffee titan making a significant investment in the global soft-drinks company. Only last month, Coca-Cola (KO -0.14%) announced that it was paying $1.2 billion for a 10% stake in Keurig Green Mountain. A few weeks later it announced it was raising its stake to 16%, making Coca-Cola Keurig's largest shareholder

The speculation surrounding Starbucks is that it's going to take a 10% stake in SodaStream, valuing the SodaStream at more than $1.1 billion. If this is true, the valuation is a 40% premium to the current market capitalization of $766 million. The company declined to comment, stating that it does not respond to rumors. 

Analysts have expected a deal of this kind ever since the announcement of the Coca-Cola-Keurig Green Mountain transaction. They have also pointed out that there is a real opportunity for growth in the United States, where only 1% of homes own these machines compared to as much as 25% in many countries in Europe. A partnership with Starbucks makes a lot of sense because of the distribution that it can provide, while SodaStream can kick start a number of marketing initiatives and provide custom flavors exclusively for Starbucks customers.

What could Starbucks be planning?
These rumors about taking a stake in SodaStream must be seen against the backdrop of Starbucks' plans to ramp up the growth of its own proprietary carbonated-beverages business. It plans to roll out Fizzio, the name for this range of beverages, in 3,000 stores before the summer season. While it would seem that promoting its own carbonated beverages would make it pointless for Starbucks to take a stake in SodaStream, that may not necessarily be the case.

It is reasonable to assume that it would like to turn Fizzio into more than just an in-store beverage, and this can be achieved by making these drinks accessible to consumers at home. It has already launched a distribution strategy of getting its coffee ingredients out to customers at home and could be contemplating the same strategy for carbonated beverages. Rather than putting out its own machines for customers to mix soda at home, it could probably do this much more efficiently by using the cheaper and more convenient SodaStream machines. In other words, Starbucks has a lot to gain by using SodaStream to expand its retail penetration.

The future outlook
SodaStream is the leading player in the making-carbonated-beverages-at-home business, and global sales of its machines in 2013 totaled 4.4 million. It sells its machines at a small markup with the objective of making its real profits on sales of accessories such as refill cartridges and flavor bottles. This strategy has proven to be successful, and sales growth over the last five years has been more than 300%. The increase in sales in the last fiscal year  was 29% because of strong demand for both machines and accessories. 

The interest of possible acquirers is because of the growth potential in the domestic market, which is estimated at $40 billion compared to which the current level of sales is minuscule. In addition, many of the large beverage companies would be looking at penetration of the at-home market. For instance, PepsiCo has been struggling to find growth in the U.S. market, and SodaStream has been avoiding ingredients such as artificial flavors and high- fructose corn syrup to cater to health-conscious customers.

Bottom line
The truth of the matter is that the company does not need to be acquired to benefit investors because it is doing fine on its own. Not only is it growing sales of machines at a fair clip, but a survey of owners showed that more than 70% of them used the machine at least once a week. This would indicate that this is more than just a fad and that customers are using machines regularly.

The company is following a prudent long-term investment strategy which, though it may hit earnings and dividends in the short term, will surely pay off handsomely in the longer term. If you are prepared to be patient as a long-term investor, SodaStream is worth a closer look.