Is SodaStream International Ltd. suffering unduly because of the travails of Green Mountain Coffee Roasters? Or have investors finally gotten a little more realistic about the long-term potential of at-home soda making?
SodaStream makes “home beverage carbonation systems” — do-it-yourself soda pop makers. The stock has been a favourite of Jim Cramer, the pundit on U.S. business news channel CNBC, and enthusiastic investors drove the shares above $75 (U.S.) in the summer of 2011. (At the time, the forward P/E was about 60).
Since then, they’ve tumbled by half, and they trade at a much-more-reasonable forward P/E of about 15.
Analyst Scott Van Winkle at Canaccord Genuity is wading into the debate, initiating coverage last week on the stock. He has a “hold” rating on the shares, but his $45 price target implies a nearly 16 per cent return from current levels.
“We are intrigued by SodaStream’s opportunities to replicate its long-term success in Europe into both the U.S. and Asia,” Mr. Van Winkle writes. “While we anticipate robust near-term growth, and a favourable 2012 holiday season in the U.S. could drive the shares, we believe the valuation is fair for a highly volatile stock and key metrics will be closely monitored as U.S. distribution is essentially complete.”
Mr. Van Winkle is a long-time bull on Green Mountain Coffee Roasters, the maker of the Keurig K-Cup machines. It has been a fervently followed stock that has recently been punished for slowing growth and earnings missteps, and until a recent bump, was trading at just 15 per cent of its 52-week high.
Bill Maurer, a blogger on the investing website Seeking Alpha, argues that investors have unfairly punished SodaStream for Green Mountain’s missteps.
“There have been times in the past where SodaStream's shares have been hit when Green Mountain issues a profit or revenue warning, or when Green Mountain missed its revenue expectations,” says Mr. Maurer, who said he does not have a position in SodaStream stock. “The theory behind this is that since both make machines and products to be used at home, or office, if one is slowing, both are. Well, they aren't.”
Green Mountain has now lowered fiscal 2012 revenue guidance twice, and SodaStream has raised guidance twice, Mr. Maurer says. “SodaStream is looking to grow product and brand, while Green Mountain is looking to reduce capital expenditures. SodaStream is not Green Mountain, and investors should realize that.”
For what it’s worth, the analyst community does: According to Bloomberg, Green Mountain has just seven “buys” among its 14 analysts, with six “holds” and a “sell” among the remainder. SodaStream has seven of its nine analysts with a “buy” rating; Mr. Van Winkle, one of just two “holds” on SodaStream, has a “buy” rating on Green Mountain and a $39 price target.
One of the things that has SodaStream bulls excited is the introduction of its machines to Wal-Mart. For skeptics like me, who argue that SodaStream’s end product is clearly more expensive than buying soda off the shelves, Wal-Mart shoppers should provide quite a test of whether the company has indeed “essentially complete[d]” U.S. distribution, as Mr. Van Winkle says.
Or, more succinctly, it will help determine whether the next sound SodaStream makes is “pop” or “fizz.”
|SODA-Q SodaStream International Ltd.||53.33||
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|GMCR-Q Green Mountain Coffee Roasters||71.30||
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