How SodaStream Can Keep On Growing

On Wednesday, SodaStream (SODA) will release its latest quarterly results. The key to making smart investment decisions on stocks reporting earnings is to anticipate how they'll do before they announce results, leaving you fully prepared to respond quickly to whatever inevitable surprises arise. That way, you'll be less likely to make an uninformed, knee-jerk reaction to news that turns out to be exactly the wrong move.

SodaStream has helped millions of consumers start making their own homemade soft drinks, with its home-carbonation systems gaining in popularity in recent years. But lately, a new trend has helped push sales higher. Let's take an early look at what's been happening with SodaStream over the past quarter and what we're likely to see in its quarterly report.

Stats on SodaStream

Source: Yahoo! Finance.

Will SodaStream's earnings keep fizzing higher?
In recent months, analysts have marked down their estimates on SodaStream's earnings substantially, cutting $0.12 per share from their first-quarter consensus and chopping more than twice that from full-year 2013 estimates. But the stock has moved to 52-week highs, rising 12% since the end of January.

Despite its strong growth, SodaStream continues to battle skepticism among analysts about the sustainability of its sales. With many still seeing home carbonation as a passing fad, investors haven't given SodaStream any real premium in terms of its earnings multiple to beverage giants Coca-Cola (KO 0.68%) and PepsiCo (PEP 1.65%), discounting SodaStream's long-term plans to turn ongoing demand for carbonator refills and soda syrups into higher-margin revenue.

But SodaStream is continuing to pull out all stops in order to improve its results. SodaStream's recent partnership with Samsung to incorporate carbonation technology into high-end refrigerators could help drive growth for consumers who don't want to deal with a separate appliance in their kitchens. Moreover, SodaStream's deal in March with bottler Cott (PRMW 1.74%) to produce soda syrup within the U.S. should help it boost its efficiency in getting flavors to domestic customers.

The key trend for SodaStream to cash in on, though, comes from health concerns over traditional soft drinks. Both Coca-Cola and PepsiCo have had to deal with the rising obesity epidemic in the U.S., and although they've taken proactive measures to try to stem potential regulation, they still rely on sales of their high-margin sugary drinks for a big part of their profits. Part of SodaStream's appeal comes from the ability to mix lower-calorie flavors, and if the company can capitalize on that fact, it could open up yet another distinct advantage to add to its existing emphasis on environmental impact.

In SodaStream's quarterly report, go beyond its machine sales to look closely at the trend among consumables like carbonator refills and flavors. Getting soda makers into the market is important, but for the company to demonstrate the sustainability that so many analysts seem to discount, SodaStream will need to see consumers follow through on their initial purchases by regularly returning to purchase refills.

Click here to add SodaStream to My Watchlist, which can find all of our Foolish analysis on it and all your other stocks.