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Can SodaStream Stock Keep Hitting New Highs?

By Rick Munarriz - Aug 6, 2018 at 10:00AM

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The maker of soda-producing machines hit new all-time highs last week after another record quarter.

When your product is all about turning still water into sparkling, it's apparently a transferable skill when it comes to fizzing up a flat stock. Shares of SodaStream (SODA) have been on fire since 2016, and the rally continues. The company behind the namesake machines that produce a growing array of carbonated beverages soared has never been hotter than it is right now. 

SodaStream stock soared 31% last week, soaring after posting another blowout quarter on Wednesday morning. The shares would go on to bust into the triple digits for the time, hitting all-time highs for the past three trading days. SodaStream seemed left for dead a few years ago after global soft drink consumption trends weighed on the novelty of making soda at home, but SodaStream's second act as flavored sparkling water gains traction as a beverage of choice is broadening the appliance's appeal.

SodaStream in rainbow-colored options.

Image source: SodaStream.

There's no business like fizz business

Revenue soared 31% to a record $171.5 million in SodaStream's second quarter. It took some time, but SodaStream sales have finally surpassed its peak 2013 top-line results. SodaStream came through with at least 30% growth in each of its major geographical regions. All three of its product categories -- starter kits, CO2 refills, and flavors -- moved higher, though the flavored syrups continue to grow the slowest as consumers use third-party options to sweeten their sparkling water or enjoy the fizzed up water on its own natural merits. 

The bottom line is growing faster, as improving gross margin and the scalability of the business continue to deliver monster earnings growth. Net income per share soared 78% $1.14 for the quarter. Analysts were only holding out for a profit of $0.73 a share, making this the third quarter in a row -- and nine of the past 10 -- that SodaStream has beaten Wall Street income targets by a double-digit percentage. 

The stock has been a game changer for investors. The stock's been a seven-bagger since the start of 2016. The ridiculous rally -- the shares have soared by at least 65% in each of the past three years -- would suggest that the stock is outrageously priced, but it's not as overvalued as you might think. Earnings growth has been spectacular through the stock's revival, giving the investment a reasonable markup relative to its growth and near-term prospects. 

SodaStream is boosting its outlook for all of 2018. It now sees revenue rising 23%, up from a goal of 15% three months ago. It sees earnings per share soaring 31% this year, an even larger revision from the mere 8% it was targeting last time out. Critics can argue that SodaStream has far outpaced those new targets through the first half of this year, implying a slowdown during the latter half of this year. However, conservative guidance has become a trademark of SodaStream's rally. 

Currency fluctuations aside, we're now eyeing a profit of $4.31 a share this year. SodaStream's all-time highs pushed the shares to trade at 27 times that multiple, certainly a high ratio but a discount to its current bottom-line growth rate. 

Investors will naturally need to keep an eye on beverage trends. Europeans have been fans of sparkling water for years -- and it remains SodaStream's largest market -- but millennials sipping LaCroix or the growing number of knockoffs are making SodaStream essential money-saving appliances again in North America. Canada experienced a 70% surge in sales in the second quarter, and stateside usage continues moving higher.

SodaStream's rally won't last forever, but you don't bet against a growth stock that consistently trounces analyst targets and raises its guidance until that trend is over. SodaStream has come a long way, but the fundamentals remain as fizzy as the carbonated beverages the appliances are cranking out. 

Rick Munarriz has no position in any of the stocks mentioned. The Motley Fool owns shares of SodaStream. The Motley Fool has a disclosure policy.

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