What does SodaStream (SODA +0.00%) need to do to get the market's attention?
Wednesday's earnings report was a blowout showing by each and every measure.
- Revenue climbed 49% to $112.5 million. Analysts were betting on a 33% pop to $103.5 million.
- Adjusted earnings soared 58% to $0.87 a share. Wall Street was expecting only half that growth, targeting a 29% advance to $0.72 a share. There was a tax benefit in the unheralded pop star's performance, but adjusted earnings before taxes still rose a hearty 42%.
- SodaStream cleared 941,000 soda maker kits, 4.3 million CO2 refills, and 7.7 million flavor syrups -- all new records. In other words, SodaStream is more popular than ever.
- The Israeli-based company is bumping its guidance higher for all of 2012.
This is the kind of showing that would send most growth stocks sharply higher, but Wednesday morning's spectacular report wasn't enough. The stock rose only 4% on the trading day, only to move lower on Thursday and Friday.
On the week, shares of SodaStream inexplicably fell 4.8%. Yes, it was a bad week for the market in general, but how can SodaStream surrender twice as much as the S&P 500's 2.4% descent?
The cheapest stock you don't know
Something interesting happens when a growth stock's fundamentals improve as its share price contracts. In SodaStream's case, we're looking at a company that is now priced at just 15 times this year's earnings and only 12 times next year's projected profitability.
That's cheap for a company growing at a substantially healthier clip than that multiple. It's even cheaper when you consider that those estimates are probably too low. Consider that SodaStream has blown through Wall Street's income estimates in each and every quarter since going public two years ago. Let's look at the past year.
| Quarter |
EPS Estmate |
EPS |
Surprise |
|---|---|---|---|
|
Q4 2011 |
$0.29 |
$0.32 |
10% |
|
Q1 2012 |
$0.46 |
$0.55 |
20% |
|
Q2 2012 |
$0.46 |
$0.52 |
13% |
|
Q3 2012 |
$0.72 |
$0.87 |
21% |
Source: Thomson Reuters.
If SodaStream has been able to trounce the market's bottom-line expectations -- by double-digit margins, mind you -- over the past year, the chances have to pretty good that it will earn more than analysts are forecasting for the future.
Faddish fears are overblown
Still, it's easy to see why the stock has a stingy short position. A lot of people think making soda at home is a fad. It also doesn't help that Green Mountain Coffee Roasters (GMCR +0.00%) -- the company that many investors associate with a home-based beverage system -- has been a disaster. The company behind the Keurig single-cup coffee brewer has seen its stock shed nearly half of its value this year. Green Mountain has disappointed investors with overambitious forecasting, decelerating growth, and competitive concerns.
SodaStream, however, has gone the other way on all fronts, even as there were 8.4 million shares of SodaStream sold short at the end of last month -- a whopping 15 times the stock's average trading volume.
Instead of falling into the fad trap, SodaStream has established its credibility. Wal-Mart (WMT +2.39%) began stocking a full line of SodaStream products in May. Kraft Foods (KRFT +0.00%) also introduced its Country Time and Crystal Light brands as SodaStream co-branded syrups this summer.
The bulls have every "I told you so" retort nailed for the short squeeze that should have happened -- but failed to materialize.
Last week wasn't perfect
It can be argued that pockets of doubt did creep up last week. Primo Water's (PRMW +0.00%) Flavorstation -- the bottled-water distributor's sparkling beverage maker that seemed left for dead a few weeks ago -- got a new lease on life when Cuisinart stepped up to support the platform as it gears up to introduce its own home-based water fizzer.
SodaStream's guidance also wasn't ideal. It wasn't raised enough to offset the holiday quarter's projected profitability. There's an encouraging reason, though: Sodastream is embarking on a massive television marketing campaign that will introduce the product to mainstream audiences. However, it will also find the pros taking a step back with their fourth-quarter profit targets.
In the end, there was just enough to feed the naysayers -- even though the good far outweighs the bad. The fizz far outweighs the flat. SodaStream will get its short squeeze, and when it happens, it's going to be a deliciously sudsy mess for the longs to finally enjoy.
Drink up
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