Last week was brutal for Sodastream International Ltd (NASDAQ: SODA) shareholders, as the global leader of home carbonation surrendered 22% of its value. The pessimism is warranted. SodaStream's refreshed outlook for the holiday quarter calls for it to post a small profit on a 26% uptick in sales.
SodaStream disappointed, and the market did what it does nearly every time that it sees that happen.
However, more than a week removed from SodaStream's bombshell, we can begin to walk through the ruins to assess the damage. Analysts who thought SodaStream would be ringing up a profit of $0.41 a share for the quarter are now hovering around $0.10 a share. SodaStream didn't publicly peek at 2014, but Wall Street gets paid to do that, and what a month ago was a profit target of $3.28 a share has been whittled down to $2.46 a share.
This isn't necessarily the end of the downward revisions. There could be a few unfashionably late analysts who have yet to chime in, and naturally, things can always get worse when SodaStream reports next month if its early read on 2014 isn't comforting. However, we can begin to assess the damage and provide a temporary approximation of what the pros see the year ahead has in store for the company that popularized the making of carbonated beverages at home.
On the surface, things appear comforting. Analysts see revenue and earnings per share climbing 21% and 17%, respectively, in 2014. SodaStream is fetching a reasonable 16 times this new year's projected profitability. That's a bargain, and not just because it's a discount to its slower growth rate. Coca-Cola (NYSE: KO) and PepsiCo (NYSE: PEP) both trade at 18 times this year's income targets. There's naturally a consistent predictability to Coca-Cola and PepsiCo, but keep in mind that these are companies only expected to grow their sales by 3% to 4% this year.
The arguments that carbonated beverages are on the decline, or that SodaStream is a fad, don't carry a lot of weight at the moment. Sodastream, Coca-Cola, and PepsiCo are all expected to grow their sales this year, and all three are looking to grow their bottom lines even faster. Knocks about SodaStream's beverage maker being a fad go against the actual sales growth that the Israeli-based company has been producing. Growing sales 26% this past quarter doesn't suggest that sales have peaked, and neither does the year ahead of projected growth in the high teens.
SodaStream isn't perfect, of course. Margins took a cold shower in the fourth quarter, and SodaStream needs to improve its operations and its product mix to get its markups back on track. However, with the new Scarlett Johansson Super Bowl ad on the horizon next weekend, the bar-raising potential of SodaStream Caps flavor capsules, and the possibility that next month's report is more optimistic than the market is right now about SodaStream's prospects, it certainly seems like an opportunistic time to warm up to SodaStream.
Last week, and the last half of 2013, haven't been easy, but until sales go the wrong way, it seems as if the revolution for homemade carbonated drinks is still taking place.
Longtime Fool contributor Rick Munarriz owns shares of SodaStream. The Motley Fool recommends Coca-Cola, PepsiCo, and SodaStream. The Motley Fool owns shares of Coca-Cola, PepsiCo, and SodaStream. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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