Welcome to "Stock Smackdown," where two similarly positioned companies will go head-to-head in a battle for superiority. They'll be judged on a series of straightforward statistics, but we'll also dig into each company's key initiatives and long-term goals to determine how much upside there might be if all goes well. The winner will be the stock that racks up the most individual victories at the end of the competition.
Now, let's go to ringside and meet our two combatants, SodaStream (Nasdaq: SODA) and Green Mountain Coffee Roasters (Nasdaq: GMCR).
In this corner…
Call this a battle of the fallen drink-makers. SodaStream and Green Mountain have both had mediocre years after huge stock price growth. Green Mountain, as the larger and longer-tenured company of the two, ran higher a year ago on bullish excitement:
SODA Total Return Price data by YCharts
Only to crater after being smacked around by short-sellers with an axe to grind:
SODA Total Return Price data by YCharts
So where are we today? Green Mountain earned a tentative thumbs-up in an analyst roundtable in July, and it's up over 40% since. However, that may be due more to the realization that single-digit P/Es for a stock with large forward growth estimates may be overly pessimistic. SodaStream, for its part, has weathered the growth-stock slowdown in much better shape, and its latest quarterly earnings blew past expectations. So, which stock has what it takes to thrive over the long term? Let's dig down and find out.
Baseline battle
We use many different numbers and ratios when talking about the value of a stock. How highly valued is it, relative to the company's sales? Is the company profitable? Does it have positive cash flow? How much debt, if any, has it taken on to maintain or expand its operations?
As a possible tiebreaker we'll also examine management's faith in the company's future through its level of insider ownership.
Our two competitors lock up:
|
Metric |
SodaStream |
Green Mountain |
|---|---|---|
| Price to Sales | 2.3 | 1.1 |
| Profit Margin | 9.9% | 9.6% |
| Free Cash Flow Margin | (8.5%) | (2.7%) |
| Debt to Equity | 0.0 | 18.8 |
| Insider Ownership | 10.6% | 15.7% |
Source: Yahoo! Finance. Winners in bold.
Green Mountain squeaks through with a win, thanks to management's greater personal stake, as well as a narrower free cash flow deficit. Is its past performance strong enough for another victory? Let's find out.
Growth battle
If we were comparing steady, dividend-paying stalwarts, we might look at things like dividend yields or payout ratios. But these two will face off on more high-growth metrics.
How fast has the stock price grown? Has revenue grown as quickly? How about the bottom line? Have either of these companies shown a willingness to dilute shares with secondary offerings? With the exception of share counts, the more growth we see, the better. These numbers will be calculated based on each stock's past three years of history -- or whatever history we can get, if it doesn't have that much to analyze.
|
Total Growth Over 3* Years in: |
SodaStream |
Green Mountain |
|---|---|---|
| Stock Price | 60.9%** | 24.4% |
| Revenue | 172.4% | 351.3% |
| Net Income | 314.3% | 517.9% |
| Free Cash Flow | (416.7%) | (890.0%) |
| Shares Outstanding | 50.4%** | 19.1% |
Sources: Morningstar and YCharts. Winners in bold. * Calculated from 2009 annual results to trailing 12 months, except stock price. ** SodaStream went public in late 2010, total growth from IPO shown.
Another narrow victory for Green Mountain. Both of these former highfliers have been cut low lately, but Green Mountain's maintained stronger growth rates over the past three years. Will SodaStream come back to capture the market's heart?
Sentiment battle
How do the world's most engaged market participants view these companies? Let's see what Wall Street's analysts expect from these companies, and what our Motley Fool CAPS community thinks.
|
Metric |
SodaStream |
Green Mountain |
|---|---|---|
| "Buy" Recs (% of total ratings) | 80.0% | 46.2% |
| Forward Growth Rate (2013) | 26.2% | 11.6% |
| CAPS Sentiment (% outperform) | 81.2% | 71.4% |
Sources: Yahoo! Finance and Motley Fool CAPS. Winners in bold.
After three rounds, Green Mountain is in the lead, but the next round is for all the marbles. With a victory on sentiment, SodaStream can win the day by claiming superior future opportunities. You may disagree -- and you're welcome to -- but some of the best investments are made by taking a leap of faith on a company with a sparkling future.
Battle for the future
SodaStream's got a leg up on its rivals in distribution, which helped knock onetime competitor Primo Water (Nasdaq: PRMW) out of the ring. Primo simply decided to stop supporting its Flavorstation device, while SodaStream only began making sales in Walmart (NYSE: WMT) this summer, and has plans to broaden its distribution horizons to supermarkets and drugstores by 2014.
Green Mountain occupies a lot of similar retail space, but operates in quite a different niche. The case for coffee is easier to make than for home-brewed soft drinks, but the competition in home-brewed coffee is intense, to put it mildly. Green Mountain's starting to move beyond coffee, making an unusual push into SodaStream-style territory with a lemonade K-Cup, but that's unlikely to be more than a very minor boost at best.
Green Mountain's best growth days may be behind it, but it's valued at half SodaStream's P/E. That makes it a more attractive takeover target, perhaps doubly so due to its ability to complement Starbucks' (Nasdaq: SBUX) home-user sales. Green Mountain may also benefit more than Starbucks from a yearlong coffee bean price decline.
However, there's one area where Green Mountain falls short, and it's been a bearish point for some time. The company's been dinged by accounting issues, and its CFO hasn't been entirely truthful about her accounting credentials, according to fellow Fool Austin Smith.
SodaStream faces similar bearish headwinds -- will growth keep up, will consumers keep buying, will competitors fall flat? -- but its list of question marks doesn't include any relating to corporate ethics. For that reason, and for the potential growth from future Walmart and supermarket sales, SodaStream earns a narrow victory, claiming its title as the better drink-machine stock today.
Green Mountain might have fallen short today, but one big piece of positive news might make it the better buy again. There's a lot that might change over the next year, which is why the Fool's dedicated one of our top retail analysts to covering Green Mountain for our brand-new premium research service. You can get a full year of access to inside reports and detailed analyses for the cost of a couple of K-Cups. What are you waiting for? Get your premium Green Mountain research started today.
