SodaStream (NASDAQ:SODA) shares are fast approaching five-year lows as continued competitive fears surrounding Coca-Cola (NYSE:KO), Keurig Green Mountain (NASDAQ:GMCR), and other large beverage companies weigh on the stock. This, combined with a lagging U.S. business, has clearly spooked shareholders. However, when you look at SodaStream purely from a valuation and growth perspective, one thing is evident.
The SodaStream problems in focus
SodaStream has been a favorite of shorts for the last three years, but the stock's near 50% loss over the last 12-months has definitely showcased an increase of concern. This is in large part tied to Coca-Cola's decision to enter the at-home soda-making business with partner Keurig. Moreover, SodaStream has been unable to secure a partnership of its own.
Not to mention, SodaStream's first quarter of 2014 showcased real concerns regarding inventories and its distribution channels, as its total revenue rose just 0.5% year over year. This mediocre growth was negatively affected by a staggering 28% decline in the Americas, further amplifying investors' worries.
Not all bad
SodaStream's first quarter was bad, and the Coca-Cola-plus-Keurig partnership is sure to cut into the company's market share. Yet, one key point for investors to remember is that the company still expects considerable growth looking ahead.
Specifically, SodaStream gave guidance for full-year revenue to increase 15% over 2013, which translates to nearly $650 million. While this far lags its near 40% annualized growth rate over the last three years, it does take into consideration the effect of a Coca-Cola market entrance and a more conservative approach.
Yet, the company still expects growth in the Americas, and with Western Europe and Asia/Pacific growing at 17% and 28%, respectively, during the first quarter, both regions remain explosive opportunities for the company.
A signal of value?
SodaStream today may not be the company it was three years ago in terms of growth, but it is still a viable player in the space. For example, its 15% expected growth in 2014 trumps that of Keurig and Coca-Cola at 7.8% and 0.2%, respectively.
In most instances, a company with more bullish growth will trade at a richer valuation premium than its peers. This premium is given due to higher expectations, or the belief that the faster growing company will ultimately grow larger. Therefore, investors look ahead to the future.
Yet, SodaStream trades at less than 15 times forward earnings, which significantly lags Coca-Cola and Keurig at nearly 19 and 31 times next year's earnings, respectively. In other words, SodaStream has double the growth of Keurig and trades at half the valuation, a signal of value to most investors.
The ups and downs of a cycle
In many ways SodaStream today is reminiscent of Keurig back in 2012. Back then Keurig shares had fallen from more than $100 in 2011 to a low of less than $20 in just one year's time due to fears of expiring patents and increased competition. Turns out, the company has survived, and while growth has slowed, the stock still trades at new highs today.
For SodaStream, it might be in a Keurig-of-2012 moment, one where investors digest the realization that 30% annualized growth is no more and must readjust their expectations. Historically, the market has a tendency to take stocks too high and push them too low at various points over time.
With all things considered, SodaStream may not be at the end of its downtrend, but with solid growth and a cheap stock, there are reasons to believe that it has a brighter future. In other words, we can't predict the day-to-day movement of SodaStream, yet the stock clearly appears to be presenting value for investors.
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Brian Nichols has no position in any stocks mentioned. The Motley Fool recommends Coca-Cola, Keurig Green Mountain, and SodaStream. The Motley Fool owns shares of SodaStream and has the following options: long January 2016 $37 calls on Coca-Cola and short January 2016 $37 puts on Coca-Cola. 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.