Source: SodaStream.

The price of shares of SodaStream (NASDAQ:SODA) has fallen by nearly 35% over the last six months due to concerns over slowing earnings growth and the partnership between Coca-Cola (NYSE:KO) and Keurig Green Mountain (UNKNOWN:GMCR.DL) to enter the home soda market.

These are important risk factors for investors; however, considering the company's competitive strengths, abundant growth opportunities, and attractive valuation, SodaStream looks well positioned to deliver market-beating returns in the years ahead.

Competitive position
On Feb. 27, Coca-Cola and Keurig Green Mountain announced an agreement in which Coca-Cola would purchase a 10% stake in Keurig Green Mountain for $1.25 billion. Coca-Cola and Keurig Green Mountain are also joining forces in the development and introduction of Coca-Cola's products for use in Green Mountain's forthcoming Keurig Cold machine.

With 17 brands making more than $1 billion in global revenues, Coca-Cola is the undisputed world leader in soft drinks, while Keurig Green Mountain is a successful pioneer in the home coffee category. This alliance could certainly rock the boat in the home soda category.

Source: SodaStream.

On the other hand, SodaStream has the first mover advantage in the industry, and the company is building brand recognition and generating valuable partnerships with different flavors providers and retail partners around the world (see images above and below).

When it comes to areas such as technology, patents, and global distribution, SodaStream's early entry into the industry should provide competitive advantages over the years to come. The same goes for building customer identification and consolidating alliances with multiple partners at an early stage.

Source: SodaStream.

Besides, Coca-Cola will hardly choose to go for low prices with its home soda offerings, as this would probably generate conflicts with its bottlers. It's too early to know how the competitive dynamics between SodaStream and the alliance between Coca-Cola and Keurig Green Mountain may play out, but it's worth keeping in mind that a giant like Coca-Cola could provide validation and increased customer attention to the home soda category.

Growth opportunities
SodaStream delivered disappointing earnings during the last quarter of 2014, due mostly to falling profit margins. This was because of a variety of factors -- machines generate lower profit margins than renewables, and they typically account for a higher proportion of sales during the holiday season. Besides, the last holiday season was particularly competitive on the pricing front.  

In addition, SodaStream had higher-than-expected costs in areas such as product reconfiguration expenses, due to the conversion of starter kits to megapacks and the inventory redeployments during the quarter.

Falling margins are a reason for concern, and management is admitting that it needs to improve execution in order to recover profitability in the coming months. On the other hand, revenues are still growing at a remarkable speed, and consumers seem to be actively engaged with the products.

Source: SodaStream.

Starter kit unit sales increased by 39% during the last quarter, carbonator refills grew 25%, and flavors units were up 32%. Carbonators and flavors are important for SodaStream when it comes to profitability, and strong sales performance is indicating that customers are actively putting the machines to good use, a healthy sign indicating strong demand and SodaStream's potential for growth.

Management estimates that the market opportunity is worth approximately $260 billion. Making less than $563 million in sales during 2013, SodaStream is a small fish in a big pond, and the company has enormous room for growth in the years ahead as long as it continues moving in the right direction and gaining traction among customers.

Attractive valuation
SodaStream is facing significant challenges, but those seem to be already reflected in the company's valuation.

SODA PE Ratio (TTM) Chart

SODA P/E Ratio (TTM) data by YCharts.

Looking at ratios like P/E and forward P/E from a historical perspective, SodaStream is offering an attractive entry point for investors willing to assume the short-term risks in exchange for substantial growth opportunities in the long term.

Bottom line
Margin pressure and growing competition from Coca-Cola and Keurig Green Mountain are considerable risks for investors in SodaStream. On the other hand, a strengthening competitive position, huge potential for growth, and a convenient valuation mean that the potential for gains could more than compensate for such risks in the years ahead.