Image source: SodaStream.
One of last year's biggest surprises was SodaStream (SODA), roaring back to life with its stock soaring 142% last year. It's been no slouch in 2017. SodaStream stock is up 8% this month, a pace that if it continues would find the shares doubling again this year.
SodaStream has reinvented itself, and in the process, distanced itself from declining flavored soda consumption trends. SodaStream is now positioned as a maker of sparkling water, and consumers are flocking to the platform again with nearly the same kind of voraciousness as investors to the stock.
It won't be easy for SodaStream stock to double again this year. Let's go over a few of the things that will need to happen for the shares to soar again in 2017.
1. Revenue growth has to be sustainable
SodaStream has now rattled off three consecutive quarters of not only top-line growth but double-digit top-line growth, reversing a streak of six straight quarterly declines. It's now growing at its fastest pace since late 2013.
Pessimists will argue that growing sales is easy when you're coming off of back-to-back years of declines. They're right, though the reversal at least silences concerns about SodaStream's near-term viability as a business. However, to keep the stock gains coming, SodaStream will need to keep building on its momentum.
Analysts see revenue climbing 7% in 2017, decelerating from its recent recovery pace but clearly still pointing in the right direction. If it can exceed those Wall Street goals, it will be on track to deliver another strong year for investors.
2. Keep beating analyst profit targets
SodaStream may not seem cheap at 23 times this new year's projected earnings, but profit forecasts kept moving higher as 2016 played out with SodaStream blowing Wall Street pros out of the water. SodaStream has landed ahead of where analysts are perched over the past year, and it hasn't even been close.
| EPS Estimate | Actual | Surprise | |
|---|---|---|---|
| Q4 2015 | $0.17 | $0.25 | 41% |
| Q1 2016 | $0.11 | $0.29 | 164% |
| Q2 2016 | $0.21 | $0.37 | 76% |
| Q3 2016 | $0.23 | $0.69 | 200% |
Data source: Yahoo! Finance.
SodaStream wasn't the same company at the end of 2016 that it was going in, and the secret to a repeat performance in 2017 is to keep analysts huffing and puffing from behind.
3. New products need to gain traction
SodaStream is rolling again. The 788,000 starter systems it sold during the third quarter was 23% ahead of the prior year's showing. Higher-margin flavoring syrups continue to decline -- most of the sparkling water being made with SodaStream these days is unflavored or being sweetened in other ways -- but SodaStream is still benefiting from an uptick in the high-margin CO2 cylinders that reflect the spike in usage.
There are now 10 million active users around the world, yet even in Germany -- SodaStream's largest market -- its penetration rate is just 6% of the homes. Clearly, there is upside with SodaStream's flagship product, but it could only help if its other platforms take off.
It's been nearly two years since SodaStream pointed to late 2016 as the release date for Mix (a bartender dream as a beverage maker that can carbonate any kind of liquid) and Ultimate (a machine that would make hot and cold beverages). It hasn't discussed them in their earnings calls since the third quarter of 2015, so it's safe to say that they are on the back burner.
SodaStream's near-term emphasis appears to be on Fizzi, the latest generation of its flagship soda maker. It's also making a big push to revamp its Fizz Concierge consumer-direct business, making it easier to replenish carbonators by mail.
Improved market penetration should be enough to keep the good times going, but growth from unexpected revenue streams and product categories could really make a difference in 2017.
