SodaStream (NASDAQ:SODA) may be one of the most misunderstood companies out there. Investors make unfair comparisons with other publicly traded companies. They discount the shares for everything from its home turf to the faddish nature of trendy small-appliance makers.
CEO Dan Birnbaum was on CNBC last week, affording him the perfect opportunity to address the flawed concerns that have been holding SodaStream back as an investment. Let's flesh out those unfair worries and blast some holes in the myths on the way out.
1. SodaStream is just like Green Mountain Coffee
SodaStream and Green Mountain Coffee Roasters (NASDAQ:GMCR.DL) each make small beverage-making kitchen appliances that are growing in popularity. Each company has a unique and proprietary ecosystem that kicks in after the initial sale. SodaStream sells its patented carbonators that fizz up still water, and it also sells branded syrup flavors. Green Mountain lost patent protection for its K-Cup platform two months ago, but it's still the leading provider of portion packs for its Keurig single-cup brewers. It also has a new brewer system that it rolled out last year with patent-protected Keurig Vue refills.
SodaStream probably didn't mind the comparisons to Green Mountain when the Keurig company was one of the market's hottest stocks, but the past year has been brutal for Green Mountain. It's in SodaStream's best interest to draw a distinction.
On CNBC, Birnbaum spelled out many of the differences between SodaStream and Green Mountain.
- Coffee is a beverage consumed primarily by adults. Soda consumption is popular among all age groups.
- Coffee is sipped largely in the morning. Soda is consumed all day.
- Green Mountain is still largely a U.S. company. SodaStream is in 45 different countries, and stateside sales account for just 28% of its revenue mix.
One can also argue that SodaStream is growing a lot faster than Green Mountain these days, and that it didn't hit the wall that Green Mountain's K-Cup patents did in September.
2. SodaStream is risky because it's an Israeli company
Given the turmoil in Gaza, it's only natural to worry about the company that's headquartered in Airport City, Israel. But Birnbaum assured CNBC viewers that it's business as usual at SodaStream. There have been no production disruptions, and all holiday deliveries have been completed to all of its markets.
Given the volatile nature of the Middle East, it's fair to want to SodaStream for some of the geopolitical risks that come with doing business out of Israel. However, SodaStream is a truly global business. It's a bigger hit in many countries far from Israel than it is at home. One out of every four homes in Sweden, for example, has a SodaStream machine.
3. The number of retail distributors dictates growth
SodaStream has been making some serious inroads in this country in terms of retail distribution. Two years ago it was mostly stores specializing in housewares that stocked the company's starter kits, carbonators, and soda flavors.
Distribution then carried over to department stores, office-supply chains, and even consumer-electronics superstores. SodaStream finally nailed Wal-Mart (NYSE:WMT) as a distributor earlier this year, leaving investors to wonder whether there's any growth left now that the world's largest retailer is stocking its products.
Well, not only do we have grocery stores and other international markets to tackle, but it's also wrong to view SodaStream by the sheer number of locations currently selling its product. As Birnbaum pointed out on CNBC, SodaStream isn't a retailer. Sales growth isn't simply the product of expansion and subtle changes in comps. As SodaStream becomes more ubiquitous, the company stands to gain shelf space and customers.
"With our recent rollout to Wal-Mart, some have even suggested that this is the beginning of the end for SodaStream in the U.S.," Birnbaum said during the company's third-quarter earnings call earlier this month. "However, we view this point in the brand's evolution as the end of the beginning."
He then went on to point out ways the company plans to grow its installed user base and generate more usage. Given the marketing campaign that rolled out this month to updates for both the systems and even the syrups, SodaStream is making sure that its growth is about more than simply a roll call of where its products are being carried.
4. SodaStream is a fad
How many more quarters of growth will SodaStream have to deliver before skeptics buckle? The company sold a record number of systems, carbonators, and flavor bottles in its latest quarter. Revenue popped 49%, and adjusted earnings climbed even faster.
It's true that history is filled with plenty of trendy kitchen appliances that spike in popularity and fade. After seeing everything from the George Foreman grill to the Margaritaville drink maker come and go, it's easy to wonder when SodaStream will go all Crocs (NASDAQ:CROX) on investors.
That's not fair, though. For starters, let's not pick on Crocs. The maker of resin shoes was dismissed as a fad several years ago, yet it's been able to grow its revenue with every passing year. There have been inventory and margin hiccups along the way that trip up Crocs as an investment, but the business isn't a flash in the pan.
SodaStream has it even better. Is Coca-Cola (NYSE:KO) a fad? Sure, New York City has banned certain serving sizes of soft drinks, and many schools have booted sodas from their cafeterias. However, soda itself has seen its global popularity grow with every passing decade for more than a century. Why should it stop now?
SodaStream only enhances the scene through convenience, freshness, value, and environmental benefits. That isn't going away. That's not a fad. The only thing that can make SodaStream vulnerable is if somebody is able to do what it's doing better. The coast is clear on that front at the moment.
Put simply, this company is misunderstood. Why else could a stock be had at an earnings multiple in the teens when it's growing three times as fast as that? Investors should probably be grateful that the myths exist. It provides the opportunity to get in while the shares are still a bargain.
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