Many of you know I like talking about "the next big thing."
Rather than waste my time weighing in on where
is headed next, I'd much rather spend it looking for "the next
Facebook," "the next Google," or "the next Apple..." If you're a
reader of my
newsletter, then you know exactly what I'm talking about.
But today, I want to update you on a stock I've told you about
already -- a company making a product in an industry that's
"already arrived." In fact, it's been around in some form or
another since at least 1876.
Now, an industry this old certainly doesn't qualify as
cutting-edge... But nonetheless, like any game-changing stock, this
company makes a product that disrupts the marketplace and changes
the way its users live their daily lives.
I'm talking about the soda business. But before I give you the
scoop on the stock I've been following, let me give you some
background on soda's history.
Way back when
Dr Pepper (NYSE:
were largely unknown regional concerns, another soft drink maker
had already achieved national name recognition. The yellow-and-blue
box the product came in was a familiar site in many homes.
Charles Hires had discovered the recipe for an herbal tea while on
his honeymoon and formulated a concentrate that could be mixed with
water and yeast. A friend of his, with a nod to the
rough-and-tumble coal miners that were the drink's initialmarket ,
suggested that the tea be rechristened. Thus "root beer" was born,
and the idea of making soft drinks at home actually predates the
iconic curvaceous bottle filled with chilled Coca-Cola.
is basically doing the same thing, but with a twist. Instead of
yeast, it uses CO2 cartridges to give soda pop its fizz. A special
countertop machine the size of a blender mixes concentrate in
special reusable bottles.
I first told my
readers about SodaStream about a year ago, while the product was
available on a limited basis and was not being advertised. Then, I
wrote an article for StreetAuthority.com
back in March
explaining how, if you're looking for a solid growth stock, you
should forget about Coca-Cola and go for SodaStream instead. (Coke
has had an amazing run. And I have no doubt about the immense
global value of the brand. But as far as growth stocks go, that
ship has sailed.)
Today, SodaStream is available everywhere, and commercials for its
sodas are commonplace on TV.
Soda is vilified among the granola set. Its various chemicals,
preservatives, carbonation, sweeteners, coloring are all said to
cause health problems. Add to that the obesity epidemic in this
country, and it's clear that moms are looking for other
alternatives. SodaStream, made at home, is perceived as healthier.
Making the drinks is portrayed as a wholesome family activity to be
enjoyed after a long bike ride or soccer game. Whether this is
true, of course, is wholly irrelevant. Perception is reality, and
SodaStream has been artful to give itself all of soda's advantages
with none of its drawbacks.
Unsurprisingly, the machines and the flavorings are flying off the
shelves. I like the device because it has a variety of sugar-free
options. And the stuff is actually cost-effective when compared
with name brands like Coca-Cola and
, after the cost of the machine has been recouped. For families
that drink a lot of soda, these savings can be appreciable -- or at
least perceived as appreciable -- which might push a consumer into
the roughly $100 purchase.
The thing that I like most about this company is that it has a long
history of profitability. Even during the financial crisis the
company made money, and most recently, in 2011, it turned a roughly
10%net profit on $289 million in revenue. In the second quarter of
2012, the advertising really began to pay off, and SodaStream did
$100 million in business. This year, the holidays could blow the
barn doors off. I expect this to be a hot Christmas item, which
could provide a shot in the arm in the fourth quarter along with
residual product sales for the next year.
Despite a good performance year-to-date, theseshares are priced
cheaply, at only 23 timesearnings . For a company with such growth
potential, that strikes me as unduly inexpensive. Given its sales
and earnings this year alone, I think the shares have afair value
of $1.2 billion (30 times anticipated 2012net earnings of $40
million). That's more than 50% upside for this year's results,
which are already largely achieved. And that projection is
purposefully conservative -- it's a scale-out of the second quarter
with no additional holiday sales built in.
Action to Take -->
SodaStream is going places. The machines have already made their
way from the shelves of upper-middle income shopping destinations
Bed Bath & Beyond (Nasdaq:
and onto the shelves of
-- the holy grail of mass market accessibility.
These soda machines are going into homes, and heaven only knows
where else they could end up. The company is
non-alcoholic spirit mixers in the U.K., and I expect these to make
an appearance in the U.S. in time for the holiday shopping season.
My guess is that restaurant chains will eventually figure out a way
to make exclusive signature sodas that include alcohol, which would
elicit thousands of machine sales and a significant quantity of
lucrative customized product. Right now, however, the company seems
focused on changing the way upper middle income families enjoy soda
pop, and its considerable success in that regard so far is enough
to put these shares on my radar screen.
[Note: Andy Obermueller, editor of StreetAuthority's
Game-Changing Stocks newsletter, has made a series of shocking
predictions that could affect your portfolio for the rest of 2012
-- and beyond. To see all of his predictions -- and learn which
stocks could protect you from the coming storm -- read this special
Andy Obermueller does not personally hold positions in any
securities mentioned in this article. StreetAuthority LLC does not
hold positions in any securities mentioned in this article.