SodaStream Is Not Green Mountain

When java darling Green Mountain Coffee Roasters (NAS: GMCR) soared 24% after posting blowout quarterly results last week, a budding pop star was latched on to its coattails.

Shares of SodaStream (NAS: SODA) also moved higher on the report.

SodaStream "rose the most in three weeks as investors bet that higher-than-expected profit for Green Mountain Coffee Roasters will translate into higher earnings for the soda machine maker," read a Bloomberg article explaining SodaStream's nearly 4% ascent Thursday.

I'm sorry. This has to stop. I have no sympathy for a sympathy play when it's not fair.

Sympathy play for the devil
I'm a huge fan of both Green Mountain and SodaStream. I recommended both companies to Rule Breakers newsletter service subscribers at lower price points. I think both companies have ideal catalysts to make them market-thumping investments in the future.

There are similarities.

Both companies provide home-based solutions for beverage consumption. They are both growing quickly. Green Mountain's net sales surged 102% in its latest quarter. Analysts see SodaStream's top line climbing 38% when it reports its 2011 financial results later this month.

Each company also feasts on the razor and blades model. Green Mountain offers its Keurig single-cup brewers practically at cost, making that back on the sale of K-Cup portion packs. SodaStream's starter system opens the door for the higher-margin sale of soda syrups and proprietary carbonators that turn ordinary water into sparkling water.

However, I've never seen a scientific study that tethers an increase in coffee drinking to a boost in soft drink consumption. If anything, given Green Mountain's expansive push into "brewed over ice" cold coffee beverages, an uptick for one company may actually be a downtick for the other.

Do I think that's really happening? Of course not. SodaStream is going to crush it later this month. The fizz facilitator has beaten Wall Street's profit targets by 32% or better every single quarter since going public in 2010. There's no reason for that to stop now. My point is simply that these aren't identical bandwagons.

Raising razors
The worst argument for SodaStream calling "shotgun" on Green Mountain's joyride last week is the whole razor-blade model thing. If Green Mountain's better-than-expected report vindicates the model in which companies sell costly hardware at cost -- or even at a loss -- in order to make that up in time on consumables with generous markups, why stop at SodaStream? Why not rally behind Kindles, Xbox 360s, and -- duh -- Gillette razors?

Stand up and be counted, laser printers! This is your time to shine.

No, it doesn't work that way.

Green Mountain and SodaStream don't even have the same model when you think about it. Green Mountain's "blades" are the now hundreds of varieties of K-Cups. Until the portion pack patents run out later this year, Green Mountain is either packaging the grounds or getting paid a welcome royalty on every unit sold.

There are no patents on SodaStream's syrup. Anyone can sell soft drink concentrate that can be poured into seltzer.

It was actually surprising to see Kraft Foods (NYS: KFT) team up with SodaStream last month, agreeing to put out Crystal Light and Country Time syrups for SodaStream starting this summer. Kraft could've just gone it alone, though there would have been branding limitations.

SodaStream's patent-protected consumables platform is the surprisingly lightweight carbonator that fizzes up tap water and needs to be replaced every 60 or 120 liters.

There's also an important geographical distinction. Green Mountain remains solely a stateside phenomenon. Most countries prefer heartier and fancier caffeinated drinks in smaller doses. SodaStream, on the other hand, is an Israeli company that has deeper market penetration through Europe than it does over here.

Brush up on the correct coattail hoppers
Green Mountain's top line more than doubling during its fiscal first quarter didn't happen in a vacuum, of course.

The move indicates growing consumer appetite for premium coffee at home, but it was the arrival of two bricks-and-mortar java pourers -- Starbucks (NAS: SBUX) and Dunkin' Brands (NAS: DNKN) -- on the Keurig platform that validated the company.

Dunkin' Donuts began offering K-Cup portion packs of its popular doughnut-shop brews this past summer. Dunkin' even began selling Keurig products in its stores. Starbucks warmed up to the hype when its K-Cups arrived at retailers in November, and a push into its namesake stores awaits later this year.

Despite playing major roles in Green Mountain's success, shares of Starbucks and Dunkin' actually declined slightly on Thursday. The market was generally flattish, but shouldn't these have been bigger beneficiaries of Green Mountain's monster quarterly report than SodaStream?

We already know that traffic isn't drying up at your local Starbucks or Dunkin' Donuts stores, so clearly this represents an incremental revenue stream for these companies. We learned absolutely nothing about SodaStream in last week's Starbucks report.

That said, we won't learn anything about Green Mountain when SodaStream reports on Feb. 29.

Know what you're sipping, investors.

Green Mountain and SodaStream are compelling recommendations for Rule Breakers subscribers, but this is now a great time to discover the next rule-breaking multibagger. It's a free report. Want it? Get it.

At the time thisarticle was published The Motley Fool owns shares of Starbucks. Motley Fool newsletter services have recommended buying shares of Green Mountain Coffee Roasters, Starbucks, and SodaStream International. Motley Fool newsletter services have recommended creating a lurking gator position in Green Mountain Coffee Roasters. 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.Longtime Fool contributor Rick Munarriz calls them as he sees them. He does not own shares in any of the stocks in this story, except for Green Mountain. Rick is also part of theRule Breakersnewsletter research team, seeking out tomorrow's ultimate growth stocks a day early.

Copyright © 1995 - 2012 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.