Buy These Drinks if These Drinks Buy

By Jon Quast - August 28, 2012 | Tickers: CBOU, GMCR, KRFT, SODA, SBUX | 0 Comments

• Email
• Print

Green Mountain Coffee Roasters (NASDAQ: GMCR) and SodaStream International (NASDAQ: SODA) are two very distinct companies.  One is in the coffee business, one is in the soda business.  One is American, one is Israeli.  However, people normally lump these two companies together.  As does one, so normally does the other.  They both soared very high in the not too distant past, only to come crashing back down to earth.  

Investors are worried about the sustainability of both companies, and the concern is very similar.  Green Mountain Coffee Roasters sells a machine for you to enjoy premium coffee at home one cup at a time. SodaStream offers a device that allows you to make your own soda at home.  Both offer you the apparatus at a deal, hoping that you will then continue to buy the k-cups or the soda flavors, which would create a recurring revenue stream for both companies.

Both companies, in my opinion, have a good start, but lack some brand power that other companies enjoy. We'll look at the fundamentals of the company, but also some ideas on how they could jolt their brands into overdrive.

SodaStream International

SodaStream peaked out around $75/share last July.  That was before things would go flat.  It was your typical story: a growth stock that didn't meet analyst's expectations despite solid growth.  Whether or not the share tumble was justified is not the point being made.  The fact is, the stock fell.

Most recently SodaStream has been doing very well.  The P/E ratio is very reasonable at around 22.  Last quarter, net income was up 44%.  And it was also a landmark report: their first $100 million revenue quarter.  What should also excite investors was the fact that SodaStream grew their business over 100% in the Americas.

One thing that hurts SodaStream, and perhaps keeps them from selling more soda making machines than they already do, is their generic flavor options.  Consider the very descriptive yet unimaginitive "Cream Soda" flavor, or the uninviting plain ol' "Cola" option.  Not too long ago a deal with Kraft (NASDAQ: KRFT) was announced to allow SodaStream to fizz up Kraft's Country Time brand.  While that's a nice move, I would like to see SodaStream gain ground from it's own brand recognition, not from someone else's.

Jones Soda Company is one of the most recognized small soda makers ever.  With bold flavors such as Berry Lemonade and FuFu Berry (not to mention Mashed Potatoes and Gravy), it could really give SodaStream the boost it needs.  Jones Soda is hurting financially, but this economic mess that they're in is not because people don't like their flavors.  People love Jones, but things weren't managed well and they got into this current mess.  With a market cap of around $14 million, SodaStream has the resources to buy them outright, and give their flavor offerings some much needed creativity.

While SodaStream has not made the slightest reference of buying someone out, I'm just dreaming what they could do.  Even when I wake from my dream the point still stands: SodaStream needs to get more creative in their flavor options to get some desperately needed brand recognition.

Green Mountain Coffee Roasters

Green Mountain Coffee Roasters reached their summit last September at $115/share.  The avalanche that followed came as a result of the fear of declining sales because Green Mountain's patents were expiring.  The patents are what had allowed them their growth up until that point in time.  Things were further complicated later with Starbucks (NASDAQ: SBUX) announcing a competitive machine to rival Green Mountain's Keurig.  Growth was in jeopardy. 

Today Green Mountain trades around $26/share.  Things are much more attractive with a P/E ratio around 12.  Most recently they surprised a lot of people when their profit increased 30%.  The report wasn't all daisies and roses, but it sure was surprising to a lot of people who had previously thought Green Mountain was done for.  Shares surged when these results were released.

While I'm a fan of Green Mountain in a lot of areas, I don't like the fact that they rely on companies like Starbucks and Dunkin Donuts for their coffee.  Yes, GMCR does have their own coffee line, but again, it doesn't have the brand recognition that the bigger companies have.  By selling K-Cups from other companies, it leaves them vulnerable should their competitors decide to stop making K-Cups and go their own way.  Green Mountain needs some brand power.

Caribou Coffee Company (NASDAQ: CBOU) has struggled of late.  People like their coffee, but their growth is slowing.  Interestingly,  the bulk of Caribou's growth over the past couple years is mainly due to the success of their K-Cups with Green Mountain.  The Caribou - Keurig connection is already there.  I think it would be a smart move for Green Mountain to then just buy Caribou Coffee outright.  They would get some much needed brand recognition and would be better prepared if companies like Starbucks pulls out.

Again, this is just a dream on my part.  Green Mountain has said nothing of buying Caribou.  But, in this fool's opinion, Green Mountain needs a brand of some kind, and Caribou would give it to them instantly.

Conclusion

I believe that both SodaStream and Green Mountain are still good growth companies trading fairly low right now, which could create a buying opportunity for some.  But for me, I would rather see them solve the brand issue before I would feel really good about the future.

• Email
• Print
• Feedback