Shares of beverage upstart SodaStream (SODA) have performed generally poorly in 2014, thanks to rising costs associated with expanding the company's footprint around the world. The company's share price is still attempting to recover from a double-digit decline in January that was caused by the disclosure of a disappointing operating profit performance in the fourth quarter of 2013.

However, SodaStream's share price received a positive jolt in mid-April, due to rumors of a possible strategic investment by a larger beverage competitor, like Starbucks (SBUX -0.91%) or PepsiCo (PEP 0.27%). So, amid the volatility, is SodaStream a good bet for investors?

What's the value?
SodaStream is the top player in the at-home carbonated-beverage market, with global sales of 4.4 million machines in 2013.  Like Keurig Green Mountain in the at-home coffee market, SodaStream sells its machines at minimal markup, hoping to make its money on the back-end through sales of accessories, mostly refill cartridges and flavor bottles.  The so-called razor-and-blades strategy has been a winner for the company, propelling a 332.8% top-line gain over the past five fiscal years.

In its latest fiscal year, it was more of the same for SodaStream, as evidenced by a 29% sales increase that was a function of strong demand for both its machines and accessories. On the downside, though, the incremental sales required heavy promotions in order to push consumers through the purchasing process, a fact that sharply curtailed the company's gross margin. The net result for SodaStream was weaker operating cash flow, negatively impacting its ability to fund the buildout of its supply chain infrastructure around the world.

The beverage giants smell profits
Of course, much of SodaStream's focus is on the U.S. geography, a market that management believes to be a $40 billion opportunity, a far cry from the $123 million that the company generated from the area in 2012. The long runway of potential growth explains why SodaStream is spending heavily to gain critical market share in the U.S., as highlighted by its larger media buys and the hiring of a brand ambassador, actress Scarlett Johansson. 

The growth opportunities in the region would also explain why the U.S. beverage giants might be interested, given their almost certain desire to get a piece of the at-home beverage pie.

While Starbucks' core coffee business continues to hum along, with solid comparable-store sales gains across its geographies, the company increasingly has had to look beyond its trademark product in order to support its heady market valuation, including the reported addition of made-to-order sodas to its store product lineup in 2014. The company's modus operandi for gaining critical mass in non-core areas has been to buy rather than build, as highlighted by its recent acquisitions of Teavana and La Boulange in the tea and baked goods categories, respectively. 

SodaStream would certainly be a much larger nugget for Starbucks to swallow, but it would be easily doable for a company that generated more than $1.7 billion in adjusted free cash flow in its latest fiscal year.

PepsiCo, in contrast, has been struggling to find growth in its beverage business, especially in the North American market, where consumers have anecdotally been souring on sugary carbonated beverages.  Part of the reason for its poor operating performance may be the inroads that SodaStream has made in the carbonated-beverage area with its machines and growing lineup of flavors. SodaStream sales seem to have likely benefited from an avoidance of ingredients that have questionable value, like high-fructose corn syrup and artificial flavors. 

An acquisition of SodaStream would give PepsiCo the top position in the at-home carbonated-beverage market. A deal would also help it to check competitor Coca-Cola's recent moves in the space, such as making a major investment in Keurig Green Mountain, helping to fund the latter's rollout of an at-home cold-beverage machine in 2015.

The bottom line
SodaStream is investing for the long term, a Buffett-esque strategy that has dented the company's near-term profit picture but will likely pay strong dividends down the road. Given the high costs of competing against the megamarketers like Coca-Cola and PepsiCo, some sort of tie-up with a well-heeled partner is a likely outcome for SodaStream, although betting on an outright acquisition would seem to be a fool's errand. As such, short-term traders would be wise to look elsewhere for gains, but long-term investors should see a gem in SodaStream.