Has Sodastream Lost its Pop?

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

The date is November 4th, 2010. Sodastream International (NASDAQ: SODA) has just completed its first day of trading as a public company. Sodastream International, a company that produces home beverage carbonation systems, which in turn allows the consumer to make carbonated soft drinks, sparkling water, and energy drinks out of tap water, has finished the day up 20.60%, or $4.12 to $24.12.

Now nearly two years later, on July 11th, 2012, Sodastream is set to open at $38.21, a 58.41% premium from its closing price on the first day of trading, but Sodastream is not currently making new highs. Sodastream has climbed as high as $79.72 before quickly retreating, on fears of slowing growth. So has Sodastream International lost its pop?

Growing Market

Sodastream International’s target market is anyone who drinks soda or sparkling water. Thanks to several of the largest beverage companies in the world such as The Coca-Cola Company(NYSE: KO)PepsiCo, Inc. (NYSE: PEP), and Dr. Pepper Snapple Group Inc. (NYSE: DPS), nearly 1 out of every 2 Americans drinks soda, and soda products are available and consumed regularly in nearly every section of the world. The growing middle classes in China and other emerging markets such as Brazil and India are creating a huge market for soda products. With more and more people gaining more money in their paychecks, they will have more money to spend on luxury items, such as soda, sparkling water, and energy drinks. There is no denying it, the carbonated beverage market is colossal, and Sodastream International has just started to penetrate the world of opportunity that is available.        

<table> <tbody> <tr> <td colspan="6"> <p>TOP 10 GROCERY MARKETS BY VALUE</p> </td> </tr> <tr> <td colspan="3"> <p><strong>2010</strong></p> </td> <td colspan="3"> <p><strong>2014</strong></p> </td> </tr> <tr> <td> <p><strong>RANK</strong></p> </td> <td> <p><strong>COUNTRY</strong></p> </td> <td> <p>€  (billions)</p> </td> <td> <p><strong>RANK</strong></p> </td> <td> <p><strong>COUNTRY</strong></p> </td> <td> <p>€  (billions)</p> </td> </tr> <tr> <td> <p>1</p> </td> <td> <p>US</p> </td> <td> <p>638</p> </td> <td> <p>1</p> </td> <td> <p>China</p> </td> <td> <p>761</p> </td> </tr> <tr> <td> <p>2</p> </td> <td> <p>China</p> </td> <td> <p>529</p> </td> <td> <p>2</p> </td> <td> <p>US</p> </td> <td> <p>745</p> </td> </tr> <tr> <td> <p>3</p> </td> <td> <p>Japan</p> </td> <td> <p>345</p> </td> <td> <p>3</p> </td> <td> <p>India</p> </td> <td> <p>448</p> </td> </tr> <tr> <td> <p>4</p> </td> <td> <p>India</p> </td> <td> <p>279</p> </td> <td> <p>4</p> </td> <td> <p>Japan</p> </td> <td> <p>360</p> </td> </tr> <tr> <td> <p>5</p> </td> <td> <p>France</p> </td> <td> <p>205</p> </td> <td> <p>5</p> </td> <td> <p>Russia</p> </td> <td> <p>322</p> </td> </tr> <tr> <td> <p>6</p> </td> <td> <p>Russia</p> </td> <td> <p>186</p> </td> <td> <p>6</p> </td> <td> <p>Brazil</p> </td> <td> <p>284</p> </td> </tr> <tr> <td> <p>7</p> </td> <td> <p>Brazil</p> </td> <td> <p>185</p> </td> <td> <p>7</p> </td> <td> <p>France</p> </td> <td> <p>228</p> </td> </tr> <tr> <td> <p>8</p> </td> <td> <p>UK</p> </td> <td> <p>170</p> </td> <td> <p>8</p> </td> <td> <p>UK</p> </td> <td> <p>198</p> </td> </tr> <tr> <td> <p>9</p> </td> <td> <p>Germany</p> </td> <td> <p>160</p> </td> <td> <p>9</p> </td> <td> <p>Germany</p> </td> <td> <p>168</p> </td> </tr> <tr> <td> <p>10</p> </td> <td> <p>Italy</p> </td> <td> <p>130</p> </td> <td> <p>10</p> </td> <td> <p>Indonesia</p> </td> <td> <p>167</p> </td> </tr> </tbody> </table>

Global Populations

(Figures in billions) 

<table> <tbody> <tr> <td> </td> <td> <p>2009</p> </td> <td> <p>2050</p> </td> </tr> <tr> <td> <p>World</p> </td> <td> <p>6.8</p> </td> <td> <p>9.1</p> </td> </tr> <tr> <td> <p>Developing</p> </td> <td> <p>5.6</p> </td> <td> <p>7.9</p> </td> </tr> </tbody> </table>

As the world becomes more personalized and customizable, there becomes a new need for products that cater to personalized needs. When a customer walks into the average grocery store, he/she sees the classics; Coca-cola, Sprite, Fanta, and maybe five other types of soda, but what if the consumer wants raspberry-lime soda or apple mango sparkling water. Sodastream accommodates to this need. Even The Coca-Cola Company has seen the need for a machine that enables customers to create their own types of drinks, driving the Coca-Cola Company to produce the Coca-Cola freestyle. The Coca-Cola freestyle is the size of a vending machine and it produces over 100 types of sodas. From Peach Fanta to Lime Coca-Cola, the freestyle machine dispenses nearly all types of soda. The downside of the freestyle is that is not a home product, being the side of a vending machine. If a customer wants personalized soda in the comfort of their own home, they turn to Sodastream. The Coca-Cola Company has realized the market Sodastream has been taking advantage of, the market for customizable beverages, and now will share in the benefits of this market with Sodastream. 

Growth is not Fizzling Out

In 2010, Sodastream International reported earnings per share of $1.09. A year later, Sodastream reported again, this time stating earnings per share of $1.34, representing 22.93% growth. In 2012, the average consensus believes earnings per share will reach $2.11, showing 57.46% growth. Sodastream’s growth is not slowing, it is accelerating. Again in 2013, earnings per share are expected to grow, this time displaying 24.17% growth, and reaching $2.62. If nothing else, Sodastream International has one of the highest growth rates in the sector, out expanding all the soda giants by a marginable rate. 2012 to 2013 earnings per share growth for The Coca-Cola Company is expected to be 9.38%, PepsiCo, Inc.’s growth is expected to be 8.31%, and Dr. Pepper Snapple Group Inc.’s growth is expected to be 8.84%. Sodastream is going to be the only company with double digit growth. Sodastream International is going to pull this growth from primarily the Americas and Asia-Pacific, both regions that house emerging market economies. On top of all of that, Sodastream International has a price to earnings to growth ratio of 0.56, which is well below the level of 1 where the ratio is fairly valued. Just take a look at Sodastream’s sales (black bar), operating profit (yellow bar), net income (green bar), net margin (green line), and operating margin (yellow line) over the coming years.

Innovative Product: More Convenient and A Wider Selection

Sodastream’s claim to fame is its innovative and fresh perspective of soda, sparkling water, and energy drinks. No longer does the consumer need to take a trip down to the nearest store to buy a 2-liter bottle of soda, and have to worry about it going flat. Now once he/she buys a Sodastream drink maker, carbonator, and their favorite syrup bottle, he/she can make delicious and affordable soda, sparkling water, and energy drinks. Each liter of the selective beverage will cost the consumer only about $0.50 to $1.00 depending on the syrup type. The Sodastream system is not only more convenient, but it offers over 100 different types of syrups. From Cranberry Raspberry to Cola, there is a flavor for every taste bud. This personal and customized approach for Sodastream has and will continue to take away from the soda giants, but the beverage giants will continue to grow as everyone on the world cannot afford the additional costs related to upholding a Sodastream system. When push comes to shove, Sodastream International has a more personalized and customizable way to create classic and widely consumed beverages.

The Foolish Bottom Line

Sodastream International is facing some fierce competition, as it is unlikely The Coca-Cola Company, PepsiCo, Inc., and Dr. Pepper Snapple Group Inc. will give up the beverage throne cheeringly. In addition, Sodastream may be affected by the slowdown in Europe as nearly 50% of their revenue was derived from Western Europe, as of March 31st, 2012. Despite these fears, Sodastream International has underlying growth that seems extremely predictable as the majority of it is coming from the Americas and China. Furthermore, Sodastream is an innovative company that changes the market. Sodastream may be down on its luck recently, but most certainly still has plenty of fizz left in it.

makinmoney2424 has no positions in the stocks mentioned above. The Motley Fool owns shares of The Coca-Cola Company, PepsiCo, and SodaStream. Motley Fool newsletter services recommend PepsiCo, SodaStream, and The Coca-Cola Company. 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.

blog comments powered by Disqus