Are We Being Too Hard on SodaStream?

It was a volatile post-earnings session for SodaStream after the company reported a rather mixed quarter. Specifically, the Americas revenue and margins and a lack of an interested buyer remain concerns. Yet as we focus on the negatives, and SodaStream trades with high beta, investors must ask if its growth prospects and valuation are more attractive than those of peers Coca-Cola , PepsiCo , and Keurig Green Mountain .

What are the negatives?
SodaStream investors have grown accustomed to seeing consistent double-digit revenue growth since before the recession. Therefore, its 0.5% revenue growth in the first quarter came as a bit of a shock, driven by a rather alarming 28% sales decline in the Americas; the company faced the same headwinds that shook much of the retail sector during this period.

Furthermore, an unfavorable sales mix and higher promotional activity led to a 220-basis-point decline in the company's gross margin. Notably, this decline can be traced directly to the double-digit decline in the company's soda-maker starter kits, which historically are an indication of future fundamental performance.

There's good news at the end of the tunnel
With that said, there were also many good points to the quarter. First and foremost, Western Europe accounts for more than half of SodaStream's business, while Asia-Pacific is becoming increasingly relevant; those two regions grew by 17% and 28%, respectively.

Also, despite this poor quarterly report, the company reiterated full-year sales growth guidance of 15% for 2014, which means the back half of the year is expected to perform well. During the company's conference call, it specifically mentioned a three-month term at the country's largest retailer that will increase SodaStream's shelf space and pour more products to the front of the store, which could bode well for the company.

How does SodaStream compare?
Aside from the ups and downs of SodaStream's first quarter, the fact is that revenue is expected to grow 15% this year; and for investors, looking ahead is the key to making a good investment. As a result, the question then becomes whether SodaStream is presenting more investment value relative to growth versus its peers.


Expected Revenue Growth

Price-to-Sales Ratio

Forward P/E Ratio

















As you can see, in using the most popular metrics for retail investors, SodaStream is expected to grow the fastest of its industry peers and happens to be the cheapest. In terms of valuation, PepsiCo and Coca-Cola are growing at a similar pace and share similar metrics, which also mirror those of SodaStream.

However, Keurig, with half the expected growth rate, trades at a steep premium, thus showing what investors are willing to pay for 7.4% growth in this industry. Therefore, with double the expected growth of Keurig, SodaStream trades with similar metrics to the two companies with zero growth.

Final thoughts
The above chart combined with the anticipation for a strong second half of 2014 implies that SodaStream is in fact presenting investment value. Even if we look further down the line, SodaStream and Keurig are expected to grow at the same 13% clip in 2015, which all but solidifies the thesis that SodaStream is presenting value for shareholders.

With that said, some will certainly dwell on the poor performance of the Americas. But in retrospect, it's a near insignificant percentage compared to the rest of SodaStream's thriving business. So, while SodaStream may or may not earn a partnership/acquisition, this is a company that's well positioned to tackle the globe with its product and return solid investment value for current and prospective investors.

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Brian Nichols has no position in any stocks mentioned. The Motley Fool recommends Coca-Cola, Keurig Green Mountain, PepsiCo, and SodaStream. The Motley Fool owns shares of PepsiCo and SodaStream and has the following options: long January 2016 $37 calls on Coca-Cola and short January 2016 $37 puts on Coca-Cola. 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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