Is SodaStream All Popped Out?
Steve is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
For more than a century, Coca-Cola (NYSE: KO) has endured as a warmly regarded fixture in our culture.
The beverage titan has certainly weathered its fair share of competition, most notably in the form of well-documented Cola Wars with massive rivals like PepsiCo (NYSE: PEP) and Dr Pepper Snapple Group. Even so, with annual revenues of more than $46 billion from thousands of products in more than 200 countries, Coca-Cola has managed to top Interbrand's annual list of Best Global Brands every year since the firm began keeping track in 2001.
To be sure, even Warren Buffett insisted more than two decades ago, “If you gave me $100 billion and said, 'Take away the soft-drink leadership of Coca-Cola in the world,' I'd give it back to you and say it can’t be done.”
A different flavor of competition
All the while, as other behemoth beverage companies continue to battle, another small, innovative soda specialist has quietly bubbled its way into the homes of record numbers of the world's soft drink consumers.
However, with comparatively minuscule 2011 revenues of $298 million, SodaStream (NASDAQ: SODA) has preferred to avoid the age-old tactics of directly competing with its well-financed peers through parallel product offerings.
Instead, SodaStream has built its business around providing everything consumers need to create a variety of carbonated drinks using tap water at home, including the base machines, reusable bottles, refillable carbon dioxide canisters, and flavored syrups.
New(ish) to America
With more than 120 million households in the United States, SodaStream's opportunity for domestic growth is staggering. Still, with only 1% household penetration in the U.S., it's no wonder SodaStream's products still seem novel to many Americans.
Perhaps unsurprisingly, then, the last few years have witnessed a renewed focus by the company to further develop its business through a combination of savvy marketing, consumer loyalty programs, and expanded retail channels. As a result, SodaStream products can now be found at more than 14,000 domestic retail locations including Target, Macy's, Bed Bath & Beyond, Costco, and Wal-Mart. In addition, SodaStream has expanded its flavor repertoire outside traditional sodas by signing deals with perennially popular names including Breville Country Time Lemonade, Campbell's V8, and Kraft Kool-Aid and Crystal Light.
If SodaStream's latest earnings are any indication, these efforts are certainly bearing fruit with year-over-year revenue growth in the Americas of 61% to $38.7 million. Additionally, even sales from its well-established Western Europe segment managed to grow 33% to $52.6 million, and revenue from Asia grew 145% to $10.9 million.
With these numbers, it would be easy to mistake SodaStream for a young, up-and-coming business. After all, the Israeli firm only held its initial public offering in November 2010, and its shares have risen 40% since the company boosted earnings guidance just two months ago.
Contrary to its high-growth, youthful ways, however, SodaStream was founded way back in 1903 and currently boasts more than 5.5 million active consumers in 45 countries. In fact, SodaStream's first Home Soda Makers were sold in the UK in 1955 and the company continues to enjoy impressive household penetration rates across much of Europe. Take Sweden, for example, where an incredible 25% of all households actively use SodaStream products.
Despite these strengths, with the stock trading near 52-week-highs and its next quarterly earnings announcement fast approaching, has SodaStream risen too far, too fast? To help us find out, let's take a look at some of the company's key metrics next to its two most significant publicly traded competitors:
|Market Capitalization||$982 million||$165.55 billion||$109.64 billion|
|Trailing P/E Ratio||24.35||19.29||18.88|
|Est. Forward P/E Ratio||18.22||17.01||16.07|
|Return on Invested Capital||15.6%||17.8%||13.1%|
|PEG Ratio (5 yr expected)||0.75||2.32||4.05|
SodaStream boasts a sparkling balance sheet with $51 million in cash and no debt. In addition, while SODA doesn't pay a dividend, its respectable ROIC of 15.6% showcases an impressive knack for creating shareholder value by reinvesting capital in its business.
At first glance, though, SodaStream appears expensive, trading for 24.35 times trailing earnings and 18.22 times next year's estimates. However, when we measure SODA's forward P/E ratio against analysts' long-term annual growth estimates of 24.3%, it has a surprisingly-low PEG ratio of 0.75. This not only suggests the stock is undervalued relative to its growth prospects but also represents a considerably discounted premium on growth compared to both Coca-Cola and Pepsi.
Foolish bottom line
Despite naysayers' assertions that SodaStream could be a fad, the 110-year-old company has long played the unsung hero of the soft drink world.
In the end, I'm convinced shares of SODA at current levels represent an attractive opportunity for investors to own part of a steadily growing, solidly profitable business at a reasonable price. While SodaStream has long provided a sticky product that keeps customers coming back for more, only now are value-conscious consumers truly beginning to appreciate what this beverage maker brings to the table.