This Company’s Product is Not a Fad
Kyle is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
“The CO2 cartridge isn’t working very well. I think it’s out of gas,” exclaimed my roommate earlier this week. It had been a couple of weeks since I moved into my college dorm and already my roommates were hooked on the home carbonating system SodaStream (NASDAQ: SODA).
I had initially purchased the machine as a way to save money on energy drinks. Prior to my purchase I had been a major Red Bull and Monster (NASDAQ: MNST) addict, drinking a minimum of one can a day. These drinks however didn’t come cheap. A can of Monster cost me around $2.50, and I realized that when I accounted for days when I added a Red Bull into the mix my average daily cost hovered around $3.00. If I kept this habit up I would be spending over $1,000 a year! While I did want to lower my caffeine intake, I was not yet ready to give it up entirely, and I couldn’t stomach the thought of drinking coffee everyday.
One day I found the solution as I walked through my local Target.
On the shelves I saw SodaStream bottles, machines, and the individual soda concentrates. Intrigued I picked up a bottle of solution and looked at it. I had seen commercials about the product, and remembered hearing Cramer talk about it on CNBC, but up till this point I had never thought about actually buying one. Then I saw something that caught my eye. One of the bottles was labeled with the word “Energy.” Realizing that this was a possible alternative to Monster drinks I began looking at the bottle for its caffeine content, and to see how many servings it made, its cost per serving, etc. Over the next couple of weeks I did the math and realized that I could get my caffeine fix for less than $0.50 a day.
I bought a machine and a bottle of “Diet Energy” as well as “Diet Cola” and began making my concoction as soon as I could. The Diet Cola tasted pretty good, but the energy drink I bought was just okay. It didn’t taste nearly as good as Monster; still it was far better than coffee, and the cost savings made up for the taste.
Over the months I had to return to the store several times to repurchase supplies. I bought a couple more bottles of the concentrated solution, and I estimate that I quickly recovered the initial cost of the machine and then some.
After looking at the company’s financial statements and being shocked at its cheap valuation I quickly made SodaStream the largest position in my portfolio.
Then things got even better.
As I was looking up SODA on Yahoo Finance to see how my shares were doing I saw a news headline: “SodaStream Partners with Kraft.” I didn’t think much about this at the time, but I would soon find that this partnership would change my caffeine consumption habits forever.
I went to my local Target again to replenish my supply of of “Diet Energy.” While I was there I noticed something new. “Crystal Light Energy” was lying on the shelves. Crystal Light had been one of Kraft’s (NASDAQ: KRFT) more popular and growing brands, and I knew that many people liked Crystal Light drinks. Being adventurous I decided to buy this instead of the “Diet Energy” drink. When I took the bottle home and made some, I was shocked to discover that it tasted amazing. It was even better than Monster!
This took me from liking SodaStream to becoming one of its most devout followers and ardent evangelists. I quickly told all of my friends about the product and had them try various flavors in the SodaStream brand.
When I went off to college several weeks ago I told my roommates that they could use my SodaStream machine anytime they wanted. Little did I know how much they would actually use it.
Each day I saw that my roommates made at least one new bottle. They bought their own mixes and our cupboard soon became filled with SodaStream products. I had to buy additional storing bottles to hold the various drinks that we all had.
A few days ago our CO2 canister ran out of gas. None of us had any idea what to do. We were left without the ability to make any soda. A cloud of despair fell upon our dorm as each person was left immobilized, unable to make his favorite drink.
The dorm room was in a panic. I quickly went online to see where I could find another CO2 canister. I knew my local Target didn’t sell them. On the SodaStream website I found that the nearest place I could buy CO2 canisters was Wal-Mart (NYSE: WMT).
SodaStream set up a partnership with Wal-Mart earlier this year that not only allowed Wal-Mart to sell SodaStream in their stores, but also gave them the ability to offer a CO2 canister exchange. By bringing in your old CO2 canister you can get a new one for just the cost of the gas.
I took in my old canister and asked the Wal-Mart employee at the door where I could find SodaStream. With a look of confusion the employee told me that they were “that way,” pointing towards the kitchen supplies section. I had to ask another employee before actually finding what I was looking for. After that I took my old canister as well as the two new ones I wanted to the checkout register. When I got to the front of the line and asked about the exchange program the lady told me that I had to go to the customer service line. Evidently they hadn’t had that much experience dealing with customers who wanted to exchange CO2 canisters.
Finally I was able to exchange my old canister with the new one, and purchase a backup one at the customer service section. This experience however worried me, and shook my faith a bit in the SodaStream brand. There was one of two possibilities as to why it was somewhat difficult to exchange my canisters.
The first possibility was that people who bought SodaStream weren’t using it often enough to need to refill their CO2. If this was the case, then my friends and I were an anomaly. My anecdotal evidence, the evidence that I based a large part of my investment thesis on, would be wrong.
The second possibility was that Wal-Mart was just having difficulties only because it was a new product on their shelves.
To find out which of these two possibilities was the case I began taking a closer look into the company’s financials.
The most important factor for SodaStream’s future success is that people continue to use their products over and over again, as opposed to just buying a machine, using it a few times and storing it in their basement. To determine SodaStream’s reuse rate I had to figure out how many makers, CO2 refills, and flavors the company sold. Fortunately the company releases all of this information on their website and in their SEC filings.
Here’s the company’s first quarter data for 2012:
It's clear by this data that SodaStream users are not only purchasing the machines, but that they are also using the company’s products and reusing them over and over again.
This information reassured me that SodaStream was a good investment, and I added to my already large position.
SodaStream can save consumers money, help non-diet soda drinkers be healthier as SodaStream’s drinks have fewer calories than Coca-Cola or Pepsi products, and they can help save the environment by cutting down on the number of plastic bottles and cans that are consumed and then thrown away.
For these reasons I suggest that all investors not only look into the company as a potential investment, but that they consider buying the product itself.
To read about more stocks that offer good investment opportunities visit the author's blog.
kf9211 owns shares of SodaStream. The Motley Fool owns shares of SodaStream. Motley Fool newsletter services recommend Monster Beverage 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. If you have questions about this post or the Fool’s blog network, click here for information.