Has SodaStream Reached a Point of Opportunity?
For the first time since April, shares of SodaStream have fallen below $50. While there has been no news to create the fall, SodaStream remains heavily shorted. Thus it tends to fall without reason at times. But with SodaStream trading 35% off its 52-week highs, is the stock now presenting a good investment opportunity?
In the last three years, SodaStream has returned gains of 59%, or near equal to the performance of the Nasdaq. However, the fundamental difference between this company and the Nasdaq is that SodaStream has an annualized growth rate of 42.6% during this period, making it one of the faster-growing consumer companies in the market.
Yet despite SodaStream's Foolish growth, investors have remained cautious in fear that its at-home soda makers are a fad; this concern explains the high short interest. However, SodaStream has answered these naysayers year after year, and eventually, the stock is likely to follow and play catch-up to the fundamental growth that's been created.
A rare combination of growth and value
The big question with stocks that underperform fundamental growth is, "When will it finally trade higher?" To answer that question you must look to the valuation of the company, and in this case, SodaStream is a value stock with momentum growth, a rarity in the market.
For 2013 SodaStream is expected to earn $564.4 million, and $672.9 million in 2014, based on an average of the estimates given by the 10 analysts who cover the stock. This equates to upside of 19% in 2014. Green Mountain Coffee Roasters is a closely compared company, and its revenue is expected to grow 9.7% in 2014.
Clearly, SodaStream is the faster-growing company, but is it cheaper?
Price-to-2014 sales estimates
Forward P/E ratio
In every single metric, whether you're using current fundamentals or looking ahead to next year, SodaStream is cheaper than Green Mountain. Both are high-growth companies, but interestingly, even when you compare SodaStream to a non-cyclical, 2%-to-3%-growth consumer industry, SodaStream still presents value.
An industry value
Consider the fact that the consumer-defensive industry trades at 2.4 times sales with a P/E ratio of 20.3. SodaStream, with about six times the growth, is comparable. Many investors have put money in this industry because they deem it safe, investing in companies such as Coca-Cola . However, you can buy SodaStream much cheaper than Coca-Cola, and with much more chance of growth.
In 2013, Coca-Cola is expected to see a year-over-year revenue decline of 1.6; the company has suffered due to new health initiatives and a focus on the risks of sugar intake. Moreover, in the company's last quarter it saw total sales decline 2.5%, and this occurred despite a 2% rise in case volume, driven in part by emerging markets. This offset in case volume growth and revenue declines shows that Coca-Cola is under pricing pressure.
With SodaStream, its products are relatively healthy; its growth is substantial, and is showing no signs of slowing. Not to mention, SodaStream can be purchased much cheaper than Coca-Cola.
Coca-Cola trades at 3.7 times sales and a forward P/E ratio of 17.7, both of which are higher than the S&P 500 index average. Thus it is very difficult to find a reason that SodaStream has fallen below $50 and remains such a heavily shorted stock.
This is a company that is still relatively new to the U.S. Up until this year, the majority of sales came from markets outside of the U.S., and in the last quarter only $50 million of the company's $144.6 million came from the Americas.
Also, those who believe SodaStream products are a fad, and that consumers buy soda-maker machines but fail to use those regularly, should note that CO2 refill growth outpaced kits in the company's last quarter. This suggests that consumers are in fact using their systems regularly.
Therefore, we may not be able to explain why the stock has fallen lately, but given all that's been discussed, SodaStream does in fact appear to be a good value investment opportunity heading into 2014.
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The article Has SodaStream Reached a Point of Opportunity? originally appeared on Fool.com.Fool contributor Brian Nichols has no position in any stocks mentioned. The Motley Fool recommends Coca-Cola and SodaStream. The Motley Fool owns shares of Coca-Cola 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.
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