The Gifting of Gadgets

AnnaLisa is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

 
Just in the last few weeks there's been a ramp up of advertising for what are likely to be the most popular kitchen gadgets this holiday season. Yes, these are the gifts you give an aunt or Mom when you don't know what else to give. The Keurig machine from Green Mountain Coffee Roasters Inc (NASDAQ: GMCR) and the Sodastream International Ltd (NASDAQ: SODA) machine. Both were displayed prominently at Macy’s when I visited before writing.

Green Mountain In The Black

Green Mountain is the most newsworthy name as it beat expectations when it reported Q4 and full FY 2012 earnings on November 27 with net sales up 46% for the full year. The company also guided higher. The stock rose 25% after the results and now trades at a 16.08 P/E and a forward P/E of 12.02. This has been a heavily shorted name, (the short float stood at 43.60% on November 15) but the holiday season is looking merry and bright for Green Mountain as the Keurig is being heavily promoted. Also, it recently inked a deal with Dr. Pepper Snapple for it to carry Snapple brand iced tea K-cups.

However, analysts are still cautious on the name as its Keurig K-cups went off patent in September and Treehouse Foods is already selling a private label version at Wal-Mart. On another front, Starbucks Corporation (NASDAQ: SBUX) debuted its Verismo machine which brews coffee and tea and features milk pods that are foamed to make lattes and cappucinos. The Verismo does not make cider and hot chocolate yet. On the Q4 call the higher end Green Mountain Vue machine with its Vue cups (still on patent and only compatible with Vue machines) and priced similarly to the Verismo have not been selling as well as hoped. One other thing to note, the company carries about ten times total debt to total cash.

But the good news is that on November 20, they hired former Coca-Cola exec Brian Kelley as new CEO and this was greeted very favorably on the Street for a double digit share price surge. Then that was followed by the huge move after earnings. Green Mountain still has room to grow and its growth trajectory is much like Starbucks’ early days with 97% growth over the last five years. In December 2011 and September this year the company surprised by 66 and 33 per cent respectively. Analysts expect double digit growth for the next five years up to 18.58% per annum while the industry is only expected to grow by 15.63% per year.

A Pop or a Fizzle

Then we come to SodaStream which like Green Mountain's razor and blade model sells individual flavor syrups to go with its Sodastream machine which carbonates ordinary tap water. You have probably seen the very simple yet effective ads in which every time the actor/actress hits the charger on the top of the machine, soda deliverers’ bottles explode, hundreds at a time getting the point across how much you save with a SodaStream machine. The commercial was even banned in the UK which has only made it more popular. Interestingly, the ad was banned by Clearcast, a UK television group because as they told Sodastream, “[it] could be seen to tell people not to go to supermarkets and buy soft drinks, and instead help to save the environment by buying a SodaStream.” Wow, that would be awful.. saving the environment and saving money. See the ad here. The machines have been featured prominently on the front of the most recent Bed, Bath and Beyond mailers.

SodaStream, an Israeli company, offers the carbonation machines and the soda flavoring syrups as well as energy drink flavorings, teas, and Country Time and Crystal Light fruit drink syrups in collaboration with Kraft Foods Group for a total of 150 flavors available in 60,000 stores in 45 countries. The P/E is around 21.38 (after the stock price rising another 3% on November 30) with a 15.28 forward P/E.

On November 14, the company surprised again on Q3 earnings with a 66.7% rise in EPS from the year ago period. They also expressed confidence in the current holiday season with margins up, revenue up and sales up in every geographic region including a triple digit rise in sales in Asia-Pacific. Maybe people are going to get Mom a SodaStream this Christmas, she probably could use an energy drink right about now.

The company was also a momentum name that went flat as sentiment fizzled but this beat coming after almost two years of consecutive profitable quarters is destroying the confidence of the short interest which stood at 60.20% on November 15. The company has no debt and likely more flavoring collaborations are in the works. While it has a slightly higher P/E than Green Mountain this name has more of a moat in the gadget biz. Pepsi and Coke aren’t making machines which compete against SodaStream like Starbucks is to Green Mountain. They don’t have to. The Israeli upstart is just beginning to get them worried, though, with SodaStream  thumbing its nose at Coca–Cola this year with an exhibit near their Atlanta HQ illustrating how many bottles could be saved from landfills with one Sodastream machine.

Pop or Joe?

If you’d asked me on Black Friday what I thought everyone was going to give Mom this year my answer would have been a crock pot as that seemed to be flying off the shelves at Kohl’s. Seriously, doesn't Mom already have a perfectly good crockpot..maybe two? But in the small appliance category these two names should fare very well this holiday season. They’re advertising and are being displayed well by the department and specialty stores. Both are trading at more reasonable valuations than in the recent past and both just guided higher. I slightly prefer SodaStream to Green Mountain after that huge move, its debt load, and its competition from Starbucks but to each his own.

 


leglamp has no positions in the stocks mentioned above. The Motley Fool owns shares of Green Mountain Coffee Roasters, Starbucks, and SodaStream and has the following options: short JAN 2013 $47.00 puts on Starbucks. Motley Fool newsletter services recommend Green Mountain Coffee Roasters, Starbucks, 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. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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