3 Reasons SodaStream International Ltd's Stock Could Fall

SodaStream's good fortune evaporated during the past year, and there's reason to believe things could get worse.

Aug 24, 2014 at 11:12AM

The year 2014 has not been good to carbonated beverage maker SodaStream (NASDAQ:SODA). Its stock has been treated like the market's punching bag, dropping on dismal earnings and popping on regular buyout chatter.

As of now, SodaStream shares are down 32% from the start of 2014. What's worse is that trend could very well continue. It is not a foregone conclusion, of course, but there are three key reasons to believe SodaStream's losing streak is not over yet.

Reason 1: SodaStream's U.S. sales are collapsing 

At some point in the past year, SodaStream hit a wall in the U.S. Not even management seems to understand what happened.

What is evident, however, is that the company's picked most of the low-hanging fruit in this market. Now, they're going to have to work a lot harder to get back on the right track – and it's far from certain they ever will.

For a quick synopsis, SodaStream took off like a rocket in the Americas starting in 2007. Sales in this region grew at an average annual rate of 95% during the six years that followed. This staggering growth propelled the company's overall expansion, as depicted in the chart below:

In recent quarters, however, this rocket seems to be coming back down to earth. Instead of growing, sales in the Americas have actually dropped by 28% and 14% during the first and second quarters of 2014.

There's mounting evidence that the beverage maker has pushed up against a ceiling for now. Even last year's holiday season proved uninspiring, prompting The Street's Herb Greenberg to describe its predicament as follows:

SodaStream is now an all-in product, where nearly everybody who is going to get or give a SODA machine has done so or will.

It's hard to disagree; especially given the fact that SodaStream has products in 17,000 retail locations, up from 2,500 at the end of 2010. If customers wanted a SodaStream, they could get one. But for the time being they don't seem too thirsty.

Reason 2: The competition will only get fiercer

While SodaStream's fretting over stalling sales in the at-home soda market, competitors are angling to get in on the action. Coca-Cola (NYSE:KO) and Keurig Green Mountain (NASDAQ:GMCR) will likely make the biggest splash with the release of their Keurig Cold machine in fiscal year 2015. This could present more problems for SodaStream.

Ko And Gmcr Big

Source: Wikipedia and Keurig Green Mountain

Coke will step into the ring wielding a portfolio of more than 500 beverage brands. Among these are some of the best-selling carbonated drink products in the world. Although it's not clear how many of Coke's brands will be made available in the Keurig Cold, it seems likely that it could offer a wider variety of well-known products than SodaStream. When it comes to providing choices, it's hard to trump the biggest beverage company in the world.

What's more is that Coke might have SodaStream beat in terms of convenience as well. If Coke and Keurig are able to pull off the feat of introducing a countertop device that does not require gas canister refills (Fortune has pointed out that carbonated gas "granules" could do the trick), this will save consumers the hassle of schlepping to the store every now and again. That would provide a significant leg up over SodaStream's current machines.

We all know consumers love choice and convenience, and there's reason to believe Coke could top SodaStream in these categories. This could potentially leave SodaStream with only a couple of key differentiators, including price and the user's ability to customize their own beverages. The problem with the former is that SodaStream admitted in a recent conference call that price is not a driving factor in customers' buying decisions for its machines. In the words of CEO Daniel Birnbaum: "[P]rice isn't our core issue."

As for the empowerment aspect, it's not clear how important this factor is in consumers' minds. If SodaStream can effectively communicate the value of customization, then customers might see the benefits of, say, limiting the calories in their cola. If that's not a clear differentiator, however, the Keurig Cold could potentially steal the show.

Reason 3: The turmoil in the Middle East could sideline SodaStream

Beyond the market dynamics, SodaStream could face some operational issues on its home turf in Israel. Airstrikes are a regular occurrence around its three Israel-based facilities, introducing heightened risk to the company's supply chain. To-date, SodaStream has claimed that no shipments have been delayed, but management admitted that work stoppages have occurred from time-to-time.

Meanwhile, the cultural and political conflict that is so tangible in the Middle East often rears its ugly head in other ways, leading to publicized disputes over issues internal to the company, like firings, or external, like protests regarding the occupation of Palestine.

Sometimes SodaStream is clearly connected to these external incidents, but more often than not it's merely guilty by association. When you have a recognizable brand and a factory located near the center of cultural conflict, that's bound to happen.

Recently, my colleague Alyce Lomax decided the "severe geopolitical risk" posed enough risk to warrant stepping away from SodaStream's stock. The regional turmoil combined with poor communication from the company proved to be a tipping point for her.

From my perspective, the situation seems to be deteriorating with time, but it's important for every investor to gather as much information as possible and draw his or her own conclusions on this particular issue.

The takeaway for investors

On the whole, SodaStream seems to be going flat right now. First off, enthusiasm for its soda makers is fading in the crucial American market. Meanwhile, Coca-Cola and Keurig Green Mountain are preparing for the launch of their Keurig Cold machine, which could have distinct advantages over SodaStream's. And finally, conflict in the Middle East poses risks that SodaStream would rather not worry about at the moment.

All of this is casting a cloud over a company that seemed to have such a bright future ahead of it only a year ago. Who knows? Things can change in a heartbeat. For now, however, there's reason to believe that SodaStream's stock could continue to lose its fizz.

Leaked: Apple's next smart device (warning, it may shock you)
Apple recently recruited a secret-development "dream team" to guarantee its newest smart device was kept hidden from the public for as long as possible. But the secret is out, and some early viewers are claiming its everyday impact could trump the iPod, iPhone, and the iPad. In fact, ABI Research predicts 485 million of this type of device will be sold per year. But one small company makes Apple's gadget possible. And its stock price has nearly unlimited room to run for early in-the-know investors. To be one of them, and see Apple's newest smart gizmo, just click here!

Isaac Pino, CPA owns shares of SodaStream. 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.

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 fool.com.

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 www.fool.com/beginners, 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 www.fool.com/podcasts.

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