may have its fair share of doubters, but this stock could
Admittedly, I'm one of the disbelievers ... or at least,
Before I dove into it, I feared this company was a fad. Though
that apprehension may have merit, the shares should move higher
during the next 12-18 months as the company builds from its 5.5
million-consumer and 60,000-store reach.
As noted in a
previous ChartWatch article
, the shares jolted past a long-term resistance zone (blue line)
in January. Volume was above average during the breakout,
suggesting that this bullish momentum should continue.
This chart shows the price of
shares along with an important support level to
But SodaStream is more than a chart. In fact, it's a unique
and misunderstood investment.
As you can gather, most investors see the U.S. beverage market,
which generated more than $264 billion last year, as SodaStream's
largest opportunity. Thus far, SodaStream has done a great job of
establishing market presence, as its machines are found in more
than 15,000 outlets. However, it's yet to achieve mainstream
appeal. The U.S. household penetration rate hovers around 1%.
That rate may improve because the company evolved its marketing
strategy, going from demonstration-based to video advertising.
The campaign will also promote the environmental friendliness of
their machine. The biggest selling point is that the world burns
100 million barrels of oil each year manufacturing soda
containers. That's 20 BP spills. Management expects this new
style will help boost the company's U.S. household penetration to
The increase of consumer awareness should help management achieve
that goal, boosting income in the process. Moreover, the
availability of CO2 containers is spreading. Gas exchange is
available at roughly 10,000 shops, and this year the company
plans to add another 3,000. This could be a huge earnings driver
over the next five years.
The company makes most of its profit from consumables - such as
CO2 cartridges. Its machine segment is not a strong moneymaker.
So it's important for SodaStream to put its machines in
households, then provide easy ways for owners to find and
purchase the higher-margin consumables.
Analysts expect that sales from the Americas (mostly the U.S.)
will increase from $48 million in 2012 to $67 million this year,
moving that percentage of total sales from 33% to nearly 40%.
Profits will expand as the Americas' market matures and pushes
margins from 2% to exceeding 25% like in Switzerland.
Analysts are generally excited about 2013. Though the average
price target is $50, 10 of 12 analysts believe it's a strong buy
while the other two think it's a hold. The analysts' 2013 EPS
estimate is $2.69, leaving the stock with an 18.5 P/E ratio.
Given the likelihood for 25% annual EPS expansion during the next
several years as the non-European segments mature, the shares
should be trading at a healthier multiple, potentially leaving us
with a price target north of $65.
Equities mentioned in this article: SODA
Positions held in companies mentioned above:
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