SodaStream (NASDAQ:SODA) has a new believer.
KeyBanc Capital Markets initiated coverage of the company behind the namesake appliances that turn tap water into sparkling soda with a bullish buy rating yesterday, sending the stock 4% higher. KeyBanc analyst Akshay Jagdale has established a $70 price target on the shares, representing a healthy 39% of upside beyond yesterday's close.
It's certainly a timely recommendation. SodaStream has lost a lot of fizz since peaking at $77.80 last June. The stock went on to close lower in five of the final six months of 2013.
SodaStream's fundamentals haven't followed the stock south. Growth continues, and that finds the shares trading at historically low multiples. SodaStream can be had for just 15 times this year's projected earnings, and you won't find too many consumer-facing companies trading at similar multiples growing faster than SodaStream. Analysts see revenue and earnings climbing 18% and 29%, respectively, in 2014.
This may not seem to be an ideal time to corner the market when it comes to home-based beverage carbonation. Soda has come under fire for childhood obesity risks, and even some of the sweeteners used in diet drinks may prove harmful.
However, it's against this backdrop that SodaStream offers a platform that is convenient, more environmentally friendly than traditional pop, and just flat-out fun.
A viable rival has yet to spring up domestically. SodaStream faces competition in some of its more established European markets, but even there the presence has actually benefited SodaStream by validating the niche.
Jagdale's bullish call this week should pan out. Whether we can credit the current buying opportunity to acquisition rumors that didn't bear fruit or slowing growth of its flavor bottles in its latest quarter, this is a rare opportunity to pick up a game-changing consumer stock at a discount to its growth rate.
Not everyone sees it that way, naturally. Oppenheimer, Stifel, and Deutsche Bank -- three of the underwriters that helped take SodaStream public at $20 in 2010 -- downgraded the stock at various points last year. There are also 8.5 million shares sold short, which is at the high end of its range over the past year. However, coming in fresh by initiating coverage as Jagdale is doing this week warrants a fresh look at a company that is far from perfect but also too cheap to ignore.