This Beverage Company Is Overflowing with Potential

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

If you are anything like the nearly 50% of the American population who consumes at least one soda per day, then it should come as no surprise that the competition in the soft drink industry is blatantly fierce. A casual stroll down the soft drink aisle at the local grocer or a panoramic glimpse of the convenience store’s coolers demonstrates the immense variety of competitors. Copious amounts of capital are allocated to marketing within these companies in hopes of getting the final consumer to reach for the red label over the blue one, so one must ask, how in the world does a company differentiate themselves in such a crowded space? Well, SodaStream (NASDAQ: SODA) is making a strong case that they have the answer to that question.

For those who might not be familiar with the company, SodaStream employs the razor and blades business model with their carbonating beverage machine, powered by replaceable CO2 cartridges, that utilizes a variety of syrups to produce beverages ranging from sparkling water to green tea to cola. For years this company has been ridiculed as a “faddish” product, relatable to the family margarita maker collecting dust in the garage, but yet the numbers that they continue to pump out each quarter prove those statements laughable. In their most recent quarter, SODA reported a strong year over year increase in revenues of 49%, comprised of increased sales in Soda Maker Units, Flavor Units and CO2 Refill Units of 31%, 76% and 19%, respectively. This is no anomaly for SodaStream, though. With the exception of a minor blip in Q1 of 2011, the company has realized 15 consecutive quarters of revenue growth--that doesn’t sound like the trend of a company who’s going out of style.

The fact that SodaStream has grown earnings at a rate of 67% YoY in the face of monstrous competition from the likes of Coca-Cola (NYSE: KO) and PepsiCo (NYSE: PEP) also speaks volumes. These are hugely established companies that have seen the insides of more refrigerators than Cheech and Chong, and they salivate over any opportunity to steal the slightest bit of market share with their billions of dollars in free cash flow, therefore SodaStream’s persistent growth definitely has something to say about its moat widening as well. SodaStream is only in the infantile stages of market infiltration and being welcomed with open arms thus far bodes well for the company moving forward.  

Despite the rapidly growing numbers that SodaStream continues to present to investors, the market is still highly doubtful of its potential. Even after a 12% rally in the last week, the company is currently only valued at a P/E of 22, performance going forward at a .63 PEG and an alleged mob of coke swigging polar bears has congregated to form a 60% short interest in the stock. However, if SODA continues pouring up these numbers, it could very well be a sweet opportunity that won’t be going flat any time soon.      


Patrock19 has no positions in the stocks mentioned above. The Motley Fool owns shares of PepsiCo and SodaStream. Motley Fool newsletter services recommend The Coca-Cola Company, PepsiCo, 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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