What's Putting the Fizz in SodaStream's Resurgence?

In this segment from the MarketFoolery podcast, host Chris Hill and Motley Fool Chief Investment Officer Andy Cross talk SodaStream (SODA), which reported quarterly revenue up 31%, its highest growth in five years. The reinvention of the make-your-own-soda company may not have gotten huge traction in the U.S. market, but in Western Europe, its resurgence has made it an object lesson in one of the core principles of Foolish investing: real patience.

A full transcript follows the video.

This video was recorded on Aug. 1, 2018.

Chris Hill: SodaStream's second quarter profits came in much higher than expected. This is the fourth quarter in a row that SodaStream has beat on earnings. The stock is up 23% this morning. Was it that good a quarter?

Andy Cross: Yeah, it was pretty good. Revenue is up about 31%. There were some currency benefits, but let's just take it for what it is. 31%, that's the highest quarterly growth for SodaStream since 2013.

This company has had a rocky road over the last couple of years. The stock reached as low as around $13-14. Today, as you mentioned, it's a massive performer. Now, I think it's north of $108. It's been a hugely rebounding stock.

As their business continues to grow and take advantage of a world that is revisiting -- even though, here, as I have my coffee this morning at The Motley Fool headquarters, I came across a SodaStream machine next to one of the coffee machines. I don't know if that thing has been touched in god-knows-how-long. But, clearly, there are a lot of people using that, especially in Western Europe, which is their big market. That's SodaStream's big market, it's 60% of their sales. In Western Europe, sales were up 33% this year as they continue to sell more and more of their sparkling water containers and their gas refills. Their gas refills were up to $9.7 million this quarter, and that was up 17%. That's a record high. And those are extremely high-margin businesses for SodaStream.

Hill: This company is a lesson in patience for investors. As you indicated, in less than two years, from the middle of 2013 to early 2016, this stock fell 85%. For people who have held on since then, in just over two years, we've seen a rise of more than 700%.

Cross: This one reason why we're fans of really patiently holding on to your investments, if you can. People need capital for different reasons. But generally, companies that continue to have businesses that they can grow, and stock prices over the short-term -- short-term, really, less than a year. For most of the active investing base, that's long-term. The average mutual fund will turn their entire portfolio over in eight months. For us and for so many great investors we respect, less than a year is still a lot of noise.

You mentioned, it's been a little bit longer than that for SodaStream, but if you follow the story, you can see what they're trying to do. Like I said before, their growth has accelerated every quarter for the past year. They continue to make further and further inroads. The Germany business has seen 26 consecutive quarters of double-digit revenue growth. That's a big market where they have the highest penetration rate.

They had some operational difficulties, but they got through those. And clearly, patient investors were rewarded. So, as much as you can, really think about extending out your time horizon when you're holding your stocks, buying those businesses and aiming to hold them as long as you can.

Hill: I'm glad you provided the context of long-term as a phrase meaning different things to different people. I enjoy watching Jim Cramer on CNBC. I remember a couple of years ago, I don't even remember what the company or the stock was, but he was referring to a company's earnings report. Cramer made his bones as a trader on Wall Street. He was talking about it, and he was saying, "I think XYZ, but if you want to think about this stock long-term, like six to 12 months, then I think ... " And I was like, wow! That's what long-term means for people who are traders! Six to 12 months, as opposed to five to ten to 20 years.

Cross: I heard a term this morning, on some business news show, called "long-term trading." I was like, I don't even know what that means. I'm not quite sure what that means.

Studies show individual investors trade too frequently. We really do feel the pains of those losses twice as much as a pain of an equivalent gain in our stocks. We all want our stocks to go up. Generally, stocks do go up. The market generally really wants to go up. Capitalism works in so many ways, and the stocks want to move higher, and businesses want to grow. That's good for stock prices. However, it doesn't always work out that way.

Having the patience to be able to hold those ... for so many of us, it's hard to do that. You have to overcome a lot of cognitive and financial and behavioral biases to do that. But we really encourage you to do that. When you think about the track record at The Motley Fool, like you just mentioned with SodaStream, but there are many others. Hopefully, we'll see it in Baidu, as well, over this year. We clearly saw it with Apple at different times in their career. It really does pay to hold these businesses as long as you can.