I remember the day we brought home our Sodastream (SODA), which was guaranteed to both quench our thirst and bring a “healthy” beverage alternative to the dinner table.
I also remember a month later, when it found its permanent resting spot in the back of our cabinet.
Luckily for Sodastream shareholders, our household doesn’t appear to be representative of the greater trend. No, more people are buying (and using) Sodastream, leading to rising sales, profits and shares.
Indeed, Barclays analyst David Kaplan raised his target price on SODA to $100 per share, roughly 50% higher than where the stock currently sits — and that’s coming on the heels of a doubling (and then some) over the past year!
Sodastream CEO Daniel Birnbaum shook up Wall Street during a May 13 shareholder meeting by proclaiming that the company’s revenue should reach $1 billion by 2016, up from $436 million in 2012. Kaplan clearly is a believer, writing in his report that “conservative estimates for 20 percent top line growth are not priced in.” Kaplan’s revenue projections include 28% growth for all of fiscal 2013, and another 20% growth in 2014. Meanwhile, he expects EPS of $2.55 and $3.28 for the same respective periods.
So should you buy Sodastream, believing in Kaplan’s euphoria? Or will this excitement and those lofty numbers eventually fall flat? To see, let’s look at the pros and cons:
Solid Performance: Sodastream is coming off a mouth-watering Q1. Revenue climbed 33% year-over-year to $117 million — driven primarily by a nearly 90% increase in sales in the U.S., where Sodastream expects to gain greater penetration — while net income improved by nearly 20% to $12.1 million. The company also raised its outlook for the year, projecting revenue growth of 27% and earnings growth of 20%, up from previous forecasts for 25% and 18% improvement, respectively.
Health-Conscious Markets: Your 8-ounce serving of Sodastream cola contains far fewer calories (35, according to the company), carbohydrates and sugar (8 grams each) and sodium (10 milligrams) than a similarly sized Coca-Cola or Pepsi, each with more than 100 calories, triple the carbs and sugar and 2.5-3.5 times the sodium. If more consumers continue to make decisions with their waistlines in mind — and that looks to be the trend — Sodastream should be a good beneficiary.
Momentum: Right after Birnbaum’s announcement, both Citigroup and Oppenheimer upped their price targets, too — though at $66 and $68 per share, neither is as bullish as Barclays’ call. Nonetheless, momentum has carried the stock higher by nearly 25% since the May 13 event. Sometimes it’s hard to fight the tape, especially when it’s as strong as this.
The Fad Factor: I’m pretty sure I’m not alone in putting the product on the shelf after a decent trial period. For me, it wasn’t the need to constantly keep up with the carbonation cartridges and flavorings; instead, the product just didn’t satisfy. I’ve talked to others who agree. Sodastream will have to hope that, again, I’m in the minority. Even as far as the healthy beverage bandwagon is concerned, its product still has to stand up against a host of healthy prepared options.
Competition: While Coca-Cola and Pepsi might pale in a healthy comparison, but they’re still delicious, and they’re both peddled by marketing Goliaths with virtually unlimited resources. Not to mention, parent companies Coca-Cola (KO) and PepsiCo (PEP) also are putting their full force behind their healthier cola alternatives Coca-Cola Zero and Pepsi Max.
Hefty Premium: While SODA is moving at the speed of light, its valuation has been moving closer to orbit, too. Sodastream is trading at 31 times trailing earnings and 26 times estimated 2013 earnings. Translation: A blip in growth (considering the now-sky-high expectations) could throw SODA for a loop. Also, considering that 45% of Sodastream’s float was sold short back in February, it’s not wild to assume some of the recent rise could be attributed to short-covering.
I just don’t believe the hype. I don’t think Sodastream’s revenue growth will exactly hit a wall, but the stock upgrades and CEO optimism have already been well baked into shares.
So should you buy Sodastream? No — the bullish run will end sooner than later. Certainly long before that $100 target.
Marc Bastow is an Assistant Editor at InvestorPlace.com. As of this writing he did not hold a position in any of the aforementioned stocks.