Consumer Products

Evaluating SodaStream as Value Versus Growth

SodaStream International Ltd. (NASDAQ: SODA) is getting back to where the stock was before the most recent major price pop took place. Many investors still want to consider the growth scenario for SodaStream, but perhaps the best way to consider SodaStream for new, would-be investors is as a value stock. After we looked through all the data, it seems as though SodaStream shares are reaching an uncanny valuation that deserves a review by value investors who may find themselves special situation investors.

Be advised that SodaStream is still subject to possible bad news reactions around its earnings reports and guidance. True value investors try to look beyond that, knowing that there could be pain around each financial report.

What is so interesting now about SodaStream is that this drop on Monday has brought this stock back down close to where it was before buyout chatter popped up. It was on July 24 that we questioned buyout chatter at $40 per share, which took shares from under $30 to as high as $36.53 in one session, before closing at $31.63 on the same day.

What we would point out is that SodaStream shares generally had been trending steady to higher prior to Friday and Monday. Friday’s drop was to $32.68, from $34.01 on Thursday (which was the closing high going back to August 26). Now the two-day drop has taken SodaStream back down to where the 50-day moving average is again being challenged for a downside violation. StockCharts.com shows the 50-day moving average at $32.04.

A review of the Nasdaq short interest offers no significant insight. The late-August short interest was high at 9.9 days to cover, but the nominal 6.51 million shares offers little out of the norm.

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The big issue is that the most recent buyout chatter was that the company could be taken private for $40 per share. Our own view is that SodaStream is not worth being a financial asset in a go-private transaction. That being said, anything is possible. Our take is that one of the global beverage players should acquire SodaStream, like Coca-Cola and Keurig Green Mountain. Several companies could do it, and with SodaStream’s market cap of $670 million or so it would be cheaper to buy the entire company than to make an initial stake as in the Coke-Keurig deal.

So, is SodaStream cheap or expensive in its financials? The company is still expected to grow, and it trades at about 17 times this year’s expected earnings and about 15 times next year’s expected earnings. That isn’t dirt cheap against the broader market, but it is far from expensive — Coca-Cola and PepsiCo are both valued at more than 18 times next year’s expected earnings expectations.