SodaStream Stock at $40 Doesn't Sound So Bad

Shares of SodaStream (NASDAQ: SODA  ) stock moved higher Wednesday after the company posted better-than-expected bottom-line results, but it's better to keep your high-five hand in its holster. Sales growth is slowing. Margin pressures continue. Soda consumption trends aren't very encouraging. Guidance is getting hosed.

SodaStream stock moved higher late last week on buyout speculation. Sources told Bloomberg that the company behind the world's leading carbonated beverage maker is in talks to be acquired by an undisclosed private equity firm for roughly $40 a share.

A buyout at that price would be humbling. SodaStream was trading for nearly twice that price when it peaked two summers ago, and yet again last summer, when reports out of Israel had PepsiCo looking to take it private to the tune of $95 a share.

PepsiCo as a buyer didn't make a lot of sense at the time, and it quickly squashed the scuttlebutt. Why would a beverage giant betray its bottlers, and sacrifice its retail operations and fountain sales by providing consumers with a more cost-effective means to make their own pop? However, when PepsiCo's only larger rival, Coca-Cola, announced that it was making a play for homemade carbonated beverages five months ago, Pepsi and SodaStream didn't seem so outlandish.

If SodaStream has resisted any buyout overtures in the past, it may want to revisit an exit strategy. The stock opened sharply higher on Wednesday and was trading near $33 per share around 3 p.m. EDT on Wednesday, but let's go over a few of the problematic nuggets in the report. 

  • Revenue rose just 7%, with stateside sales continuing to decline.
  • Net income plunged 29%. That was a lot better than expected, but it's still margin contraction.
  • Unit volume of carbonator refills and syrup bottles rose 17% and 9%, respectively, but actual soda makers declined 16%.
  • Three months ago, SodaStream was targeting 15% revenue growth for all of 2014. Now, its outlook calls for a mere 5% uptick on the top line. 

It was easy to see the guidance drop coming. Even as a bull and longtime investor, I pointed out how it seemed inevitable back in May. "SodaStream may also be setting itself up for a fall this year by sticking to a 15% top-line guidance target for all of 2014 that implies sales will grow at a roughly 25% clip during the latter half of this year," I wrote at the time. "That just doesn't seem realistic."

So, is the stock moving higher because it's holding up better on the bottom line, owning up to decelerating growth, or slipping to the point where it's vulnerable to a hostile buyout offer? Let's go with the final option.

This would certainly be a good time for PepsiCo to weigh its options, especially because buying all of SodaStream would cost far less than the roughly $2 billion that Coke's parent has spent to buy into the upcoming Keurig Cold platform earlier this year. This also has to be a dinner bell to private equity firms that can attempt a turnaround of SodaStream's still-growing business away from the quarterly judgments. 

Investors should never buy stocks based on buyout speculation, but it's hard to fathom SodaStream as a stand-alone entity, with desperate soda giants wanting in on this niche at a time when its own driving skills are suspect. The cola wars are about to get a bit more interesting.

Source: SodaStream.

Read/Post Comments (0) | Recommend This Article (6)

Comments from our Foolish Readers

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.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 3050288, ~/Articles/ArticleHandler.aspx, 8/31/2015 4:14:21 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Rick Munarriz

Rick has been writing for Motley Fool since 1995 where he's a Consumer and Tech Stocks Specialist. Yes, that's a long time. He's been an analyst for Motley Fool Rule Breakers and a portfolio lead analyst for Motley Fool Supernova since each newsletter service's inception. He earned his BBA and MBA from the University of Miami, and he now lives a block from his alma mater.

Today's Market

updated Moments ago Sponsored by:
DOW 16,545.40 -97.61 -0.59%
S&P 500 1,972.18 -16.69 -0.84%
NASD 4,780.26 -48.07 -1.00%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

8/31/2015 3:58 PM
SODA $15.24 Up +0.33 +2.21%
SodaStream CAPS Rating: **