Small-Cap Throwdown: SodaStream International (SODA) Analysis

Steve Kanaval |

Equities.com’s Small-Cap Throwdown is a brand new investment newsletter focused on finding the best underdog stocks you haven’t heard about. It is authored by Wall Street veteran and notorious straight shooter Steve Kanaval in his distinctive style. In each issue, readers can expect Steve to comb through a no-holds-barred melee between a hand-picked group of feisty welterweight title contenders to determine their industry’s king of the ring. The first issue of Equities.com Small-Cap Throwdown pits the hottest beverage small-cap stocks against each other to find a winner. Here's Steve's take on SodaStream International (SODA) and sign-up here for a free issue!

About the Company

SodaStream International Ltd. (SODA) develops, manufactures, and markets home beverage carbonation systems and related products. The company operates through four segments: The Americas; Western Europe; Asia-Pacific; and Central and Eastern Europe, Middle East, and Africa.

What Other Analysts Won't Tell You

Cash flow will become a problem for SodaStream. I think it's silly for a company to increase its internal costs and continue to overpay ineffective managers when the company lost half its value over the past year. I don't think having a 37-year-old "people manager" will solve peaking sales. This is not Google (GOOG), and this is not Silicon Valley. SodaStream is in a dogfight for market share against Warren Buffet at Coca Cola (KO), and they are so far down the line that the company needs to light the building on fire to even get anyone's attention. I believe the company is hanging on to human capital because it is for sale and believes it will be purchased in 2015.

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If you have owned a SodaStream product and have experimented with the C02, and the flavors then you know that it becomes a novelty after a couple of uses. This is reflected clearly in recent sales from the last quarter where SodaStream starter kits were down 14%, C02 sales were flat and flavors sales were down 41%. This is a reflection of a novelty item versus a growth product. The starter kit sale metric is the one to watch if you intend to own shares for the long haul. The product is good, and if you drink soda products, you’ll notice that there is much variety with the flavors, and it's easy to use.

What Can the Stock Do in the Next Few Quarters

The company did a great job getting on the consumer’s counter. They didn't overspend on ads and seem to capture business by loyal customer word of mouth, but the real advantage for SodaStream is the fact that they are likely to be taken over if shares fall below $10, giving investors a floor. I see shares trading sideways, but if they find sales growth, they can trade as high as $28, which is upside of 30% from here – at which point management can certainly call 2015 a success. Of course, that’s a best case scenario.

What Will the Stock Do In 2015

Shares opened in 2014 near $50, and by yearend they were worth half that, meaning if you stayed with them, you were trading on hope. If you bought shares on January 1, 2015, you paid $20 per share, and while it’s unlikely they will again lose half the value, I see little chance they recover 2014’s losses. I see this as flat to up or down 10% in 2015, meaning it remains between the $15 and $25 range. In the Small and Micro Cap world, that is dead money. I think there’s a slight possibility the company will be purchased if it stays between the $15 and $20 per share range.

What I Hate About SodaStream

SodaStream was a good product in 2012 when its growth story was fresh, but that was three years ago when the share price was in the $70s and Wall Street built in a multiple that expected them to take market share from the majors. If you dissect price action around earnings, it is always a similar story where hopeful investors exit after an earnings miss, and these players never return. I hate dead money, and if you cannot make 100% in some of the stocks you pick in this space you will lose, because there are too many small stocks under $1 billion in market cap that go sideways or down...I don't want to invest in those.

See the rest of the Small-Cap Beverage Throwdown here.

Steve Kanaval is the author of the upcoming Equities.com's Small-Cap Throwdown, a premium newsletter designed to help investors identify the best small-cap stocks to add to your portfolio and trading ideas to profit off them. The first issue pits the hottest beverage small-cap stocks against each other to find a winner. Sign-up here for a free issue today!

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DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

Companies

Symbol Name Price Change % Volume
SODA SodaStream International Ltd. 38.70 0.00 0.00 51,467
GOOG Alphabet Inc. 783.90 7.48 0.96 660,162
KO Coca-Cola Company (The) 42.05 1.07 2.60 10,500,290

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