When Will SodaStream Be Loved?

Mr. Market is a tough critic.

SodaStream (NAS: SODA) has been putting on a heck of a show since going public nearly two years ago. It has blown through Wall Street's profit targets with ease every single time. The closest analysts ever got was two quarters ago, and even then SodaStream landed 19% ahead of the pros.

The lingering fear that the Israeli-based company behind the home-based carbonated-beverage maker is a fad is refuted every fiscal period. Revenue soared 50% in its latest quarter, and adjusted earnings popped 67% higher.

Despite the consistent beats and heady growth, investors have a funny way of spitting SodaStream back out after every blowout quarter. Since peaking last summer at nearly $80 a share, the stock has shed nearly two-thirds of its value.

Some stocks deserve to get marked down when their growth stories turn flat, but SodaStream is as fizzy as ever.

Cheap drinks
The stock closed on Thursday at a little more than 20 times trailing earnings, and a mere 15 times next year's projected profitability -- which history already tells us is probably less than what SodaStream will ultimately earn.

Does that seem right for a company that's growing several times faster than its multiple suggests? Just compare SodaStream with some other fast-growing beverage-related companies.

Monster Beverage (NAS: MNST) is the company behind the most popular carbonated energy drink outside of Red Bull. The company is a market darling, and priced accordingly. Monster fetches 42 times trailing earnings and 28 times next year's profit estimate.

Yes, Monster's a beast. Net sales climbed 28% during the first three months of this year. Net income surged 38% higher. That's pretty darn good, but we're talking about double the multiples for half the growth rates.

Really, Mr. Market? You do know that you can make carbonated energy drinks at home with SodaStream, right?

Starbucks (NAS: SBUX) isn't as good a match as Monster, but it is the class of beverage stocks. Starbucks also has VIA instant-coffee packets and is rolling out single-serve espresso maker later this year, so it may be considered a SodaStream-esque play on home-based drinks.

Starbucks isn't growing as quickly as Monster or SodaStream, though. Earnings climbed 18% during the first three months of this year on a 15% uptick in net sales. With a trailing P/E of 30 and a 2013 multiple of 22, once again we see the faster-growing SodaStream trading at a freakishly low earnings-based multiple.

SodaStream isn't perfect
SodaStream doesn't have the brand appeal of Starbucks or even Monster., but it is a global giant in some markets. SodaStream machines can be found in more than 20% of homes in Sweden, for example.

Its refillable CO2 cartridges are patent-protected, though obviously anyone can come up with flavored syrups. It will be validating to see Kraft (NYS: KFT) put out Crystal Light diet drinks and Country Time lemonade in SodaStream-licensed syrup containers this summer, but there really isn't any beverage company that can't market its flavors without SodaStream's help.

There's also the seemingly low barrier to entry. SodaStream has competition in some overseas markets, and it also has one notable rival here. However, Primo Water (NAS: PRMW) has struggled to get its Flavorstation carbonated-beverage system maker distributed beyond a popular home-improvement chain. Primo now expects Flavorstation sales of just $15 million to $17 million this year -- or less than 5% of the revenues SodaStream is targeting.

Yes, growth will slow from here, but for now, SodaStream recently revised its guidance higher, and we're talking a rise in net sales and earnings of 35% and 50%, respectively. It's still not right that a company with that kind of growth -- bucking the faddishness complaints and trouncing Wall Street estimates -- can be had for just 15 times next year's earnings.

Wall Street doesn't have a drinking problem -- it has a thinking problem.

Drink up
SodaStream is one of the many dynamic recommendations made to Rule Breakers subscribers over the years, but this is a great time to discover the next Rule-Breaking multibagger the newsletter service has unearthed. It's a free report. Want it? Get it.

At the time this article was published The Motley Fool owns shares of SodaStream International and Starbucks.Motley Fool newsletter serviceshave recommended buying shares of SodaStream International, Monster Beverage, and Starbucks and writing covered calls on Starbucks. The Motley Fool has adisclosure policy. We Fools don't all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. Try any of our Foolish newsletter servicesfree for 30 days.Longtime Fool contributorRick Munarrizcalls them as he sees them. He owns no shares in any of the stocks in this story and is also part of theRule Breakersnewsletter research team, seeking out tomorrow's ultimate growth stocks a day early.

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