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SodaStream International (NASDAQ:SODA) shares have had a bad time in 2014 with shares down more than 20%. The company's fourth-quarter results were quite disappointing when compared to last year as pricing and cost headwinds during the holiday season hurt its performance. Moreover, with competition rising after the deal between Coca-Cola (NYSE:KO) and Green Mountain Coffee Roasters (NASDAQ:GMCR), SodaStream investors were in for more troubled times.

However, despite bad results, SodaStream was able to gain its momentum back quickly on the back of takeover talk by PepsiCo (NYSE:PEP). The beverage giant is expected to acquire SodaStream to rival Coca-Cola's and Green Mountain's partnership to market the Keurig Cold at-home beverage system. However, what are SodaStream's prospects as a stand-alone company, ignoring the chatter around the purported PepsiCo takeover? Let's take a look at the company's results and its prospects going forward.

Recent results

SodaStream's revenue climbed 26% to $168.1 million in the fourth quarter, above estimates of $167.3 million. Net income was $700,000 versus $7.5 million a year earlier. EBDITDA decreased 31.4% to $8.7 million from $12.6 million in the fourth quarter of 2012. The decline in the profit was attributed primarily to a lower average selling price, largely through discounting and promotions, an unfavorable change in the foreign currency exchange rate, and a shift in sales channels.

But, on the other hand, SodaStream sold 4.4 million soda maker machines, an increase of 27% from 2012. Moreover, consumables sales grew 25% as a result of 30% growth in gas refill units and a 22% jump in flavored units. This drove full year revenue to $562 million, up 29% from last year.

SodaStream saw strong revenue growth in the Americas, where its revenue increased 16%, while in Western Europe, revenue increased 38%. In the Asia Pacific, SodaStream's revenue grew 28%, while 36% growth was seen in the CEMEA (Central and Eastern Europe, Middle East and Africa) region.

Going forward

SodaStream expects some of the headwinds seen in the second half of last year to continue in the first half of 2014. A higher inventory level in the retail channel is expected to pressure margins. As the company moved a lot of inventory from the U.S., where there was less demand, to other emerging markets, it incurred costs for reconfiguring its machines. But, these moves should prove to be beneficial in the long run since SodaStream is seeing stronger growth in markets abroad than in the U.S. as we saw above. SodaStream management remains confident and optimistic about the company, as the size of the carbonated beverage market is a massive $260 billion globally.

SodaStream also entered into a strategic agreement with Sunny Delight Beverages, a producer of Juice-based drinks, to co-develop SunnyD Tangy original orange, orange-strawberry, and other flavors exclusively for Soda Stream's home beverage carbonation system. The company expects that these popular flavors will attract new customers to both brands, eventually driving consumer interest in the growing home carbonation category.

SodaStream has taken innovative steps in all areas of its business, and is aiming at enhancing the user experience through automation, and partnerships with other players. In the past few months, the company has announced flavor partnerships with Welch's Del Monte, Cooking Light, and Skinny Girl, with more brands coming soon. SodaStream has also teamed up with Samsung to include "powered by SodaStream" tap directly that will help the company penetrate more markets through Samsung's sparkling refrigerator.

SodaStream expects that its revenue would grow approximately 15% year over year. Excluding the effects of currency headwinds, EBITDA should grow 11%. Net Income is expected to increase approximately 3% year over year.

The Coke-Green Mountain threat

Soda Stream does have tough and stiff competition from Coca-Cola. The alliance between Coca-Cola and Green Mountain Coffee Roasters is a threat for the company. Coca-Cola has decided to re-enter the home soda market by buying 10% of Green Mountain for $1.25 billion. The two companies have entered into a 10 year agreement, under which Green Mountain would use Coca-Cola's products in the Keurig Cold machine. The machine is expected to be launched later this year, and will dispense carbonated drinks, enhanced waters, juice drinks, sports drinks and teas, according to the two companies.

This would be a big threat for SodaStream since Coke's wide distribution network could hurt SodaStream in the global markets. Coca-Cola already has strong presence in emerging markets such as India, and this partnership could be big for Green Mountain. Green Mountain's expertise in single-serve systems, coupled with Coca-Cola's wide distribution network, could lead to solid growth in the long run.

However, as Citron Research reports, PepsiCo might make a move for SodaStream in a bid to contend with Coca-Cola in this market. Citron reports that PepsiCo might enter into a partnership with SodaStream, or take a stake in the company, or even buy it. Any of these three scenarios could be highly-beneficial for SodaStream investors, so they should stick to the stock going forward.

Conclusion

Finally, SodaStream looks cheap relative to its valuation. The company trades at a trailing P/E ratio of 20, which when compared to the projected earnings CAGR of 28.3% for the next five years, looks cheap. So, SodaStream could be a good investment prospect for the long run, irrespective of the noise and takeover chatter in the industry.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Source: Why SodaStream Can Fight Coca-Cola And Green Mountain Alone