SodaStream International Ltd Is a Risky Play With a Big Payoff

SodaStream - SodaStream International Ltd Is a Risky Play With a Big Payoff

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SodaStream International Ltd (NASDAQ:SODA) is an Israel-based company that essentially sells home and office machines that carbonate water. Once known as a do-it-yourself soda making company, SodaStream now refers to itself as a carbonated water company.

That may not sound like a compelling business model, but SodaStream stock has a market cap topping $9 billion. It’s a significant business all around the world.

The History of SodaStream and SodaStream Stock

SODA stock launched in late 2010. At the time, SodaStream was aiming at becoming an alternative to the soft drink market in the U.S. You bought syrups that were flavored to pass for most of the major soft drink brands. It also had a line of cocktail mix blends and fruit flavorings (lime, lemon, orange) for sparkling water.

It was a great idea when it launched, since it was billed as cheaper than name brand sodas. And more convenient since you could make as much or as little as needed and didn’t have to have a large stockpile of canned soda around. You had the concentrated syrups and the bottles to make it in.

And SodaStream was quite popular for a couple years, as a concept and as a company. But consumers began moving away from sugary soft drinks, which was the core of its business model.

Also, there were challenges with its model. The syrups became more expensive, so it wasn’t significantly cheaper (or more convenient) to buy the bottles, carbonation machine and carbon-dioxide canister than it was just to buy canned sodas. Plus the canned or bottled sodas would last indefinitely, which isn’t the case for SodaStream drinks.

There were also logistical problems with getting replacement charging canisters. In suburban and rural areas, it wasn’t necessarily convenient to run to the store to get a new CO2 canister when you ran out. And stockpiling them went counter to the point of the whole SodaStream concept.

By 2014, these challenges were starting to show up in SodaStream stock earnings.

The question was, as the major soft drink makers were already making major strides into the flavored water and juice market, whether SODA could pivot successfully given the competition.

SodaStream Changes Flavor

And what exactly was its goal in pivoting?

The new SODA strategy was to focus on water. While it would provide some of the products it sold before through retailers and online, it was going to focus on carbonating water in strategic markets around the world.

It took a year or two to finally get some traction. By 2016, things started to look up from the depths. In the past 12 months, SodaStream stock is on a roll — up more than 80%.

And the company just released its Q4 earnings on Wednesday. There were very impressive. Revenue was up 20%, operating income was up 36% to an all-time record. Diluted earnings per share were up 58%.

SODA stock was up nearly 5% on the day of the release.

The most interesting aspect is, its growth is now global. Its biggest markets in the past quarter were Germany, Canada, Australia and Japan. What’s more, the weaker dollar helps all that revenue have a bigger impact on the bottom line.

So SodaStream stock is a buy, but it’s a risky one. If its pivot continues to be as successful as it seems now, there could be a huge payoff for investors.

Louis Navellier is a renowned growth investor. He is the editor of five investing newsletters: Blue Chip Growth, Emerging Growth, Ultimate Growth, Family Trust and Platinum Growth. His most popular service, Blue Chip Growth, has a track record of beating the market 3:1 over the last 14 years. He uses a combination of quantitative and fundamental analysis to identify market-beating stocks. Mr. Navellier has made his proven formula accessible to investors via his free, online stock rating tool, Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.

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