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Growth at an Even More Reasonable Price

January 20, 2014 | About:
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Soda Stream is now trading on a PE of around 20 after reporting revenue growth of 28.8% in 2013 and average annual EPS growth of 27.4% over the past five years. The stock price dropped sharply last week after preliminary 2013 results disappointed. The stock closed at $38.15 on Friday representing a fall of almost 25% on the week and a drop of just over 50% since its peak in June 2013.  

The disappointment was caused by full year 2013 preliminary revenues of $562.0 million compared to previous guidance of $567 million and 2012 results of $436.3 million while earnings disappointed with GAAP net income of $41.5 million compared to the previously forecast $54 million and 2012 results of $43.9 million. 

The company said the results reflect a challenging holiday selling season in the U.S. with lower sell-in prices and higher product costs, a shift in product mix versus plan, and unfavorable changes in foreign currency exchange rates negatively impacting gross margins.  

Nevertheless the results show that the growth story continues with revenue growth of 28.8% leading to all time record revenues and adjusted profits.  SodaStream has seen rapid revenue growth over recent years that has been matched by earnings growth even as the company invests heavily in international expansion (view chart).  

The outlook for the company remains bright as it rolls out its product range globally.  Overall SodaStream still has less than 1% of the global carbonated beverage market, but this may be changing with revenues growing by 96% in America, 31% in Asia and 28% in central and eastern Europe, Middle East and Africa in quarter four.  Penetration in Europe is estimated between 15% to 25%, and the company is aiming to replicate this elsewhere.  

Further, partnerships with leading drinks manufacturers have allowed SodaStream to develop its product into new and exciting areas.  In 2013, SodaStream announced a strategic agreement with EBOOST, a leading manufacturer of natural energy drinks, to license EBOOST flavors and proprietary energy blends exclusively for use with SodaStream home soda makers.  Additionally, last year SodaStream announced a strategic alliance with Ocean Spray to license a portfolio of juice blend concentrates for the SodaStream carbonation system.

The recent results show that Sodastream has had to give up some of its margin to maintain its meteoric growth.  This is not a positive development but, like other growth stocks, it is often nescessary to forego some short term profitability in order to achieve medium term growth.  

Unlike many other growth stocks, Sodastream has shown that it is profitable with earnings consistently growing alongside revenues. Fourth quarter 2013 was an exception but should be reversed quickly as low-margin soda machine sales are followed by high-margin gas and flavor refills.  

The company is moving quickly to implement the necessary measures to restore margins to historical levels and remains confident that it can profitably expand its market share and meet its long-term goals.  Investors looking for an innovative company with a unique product and profitable growth record may soon see the recent fall as a buying opportunity.


The author is a blogger at SurgingEarnings.Com

Risk Disclaimer:  This article does not constitute a recommendation to buy or sell.  Investing in stocks or other securities and derivatives is a high risk activity and not suitable for everyone.  It is strongly recommended that individuals should consult with a SEC registered investment advisor prior to making any investment decisions.  

Disclosure:  The author holds no positions in the above mentioned stocks


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