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Sodastream International (NASDAQ:SODA) has gotten killed in the last few months on everything from cautious guidance from management to the announcement of a competitor, The Primo Flavorstation. With more than 6 million of its approximate 14 million shares outstanding being shorted, SODA looks as if it might be down for the count. I believe that this could not be further from the truth.

Long term, sure maybe this thing is a fad, who knows, but we all know that the market doesn’t care about the long term or the S&P 500 (NYSEARCA:SPY) (SPX) would not have rallied 10% on hope for a solution from the 9th summit in 18 months (especially after EU leaders declared victory in July). The market doesn’t care about long term, so for the next few months, neither should you. I am bullish on SODA over the next 4 months; here’s why:

Stocks trade on earnings and guidance from earnings reports. This is undisputable and is evidenced by Netflix (NASDAQ:NFLX) and Amazon’s (NASDAQ:AMZN) recent plummet. I have gone to 4 different Macy’s (NYSE:M) and 3 different Bed Bath & Beyond (NASDAQ:BBBY) stores. Everyone that I have talked to said that they sold out of Soda makers last Christmas and that sales have been steadily increasing throughout the year. SODA’s future is in the Americas. In Sweden SODA has obtained about 20% household penetration yet it has not even grabbed 1% in the U.S. (as little as 3% household penetration could easily add $3 in EPS to SODA’s bottom line and at a multiple of 25x given its rapid growth, you could put the stock around $100 per share in a year or two’s time).

SODA will beat thanks to distribution and marketing. Last Q3 and Q4 SODA did not have its products fully distributed and many stores were just testing the product to see if they could sell it. The last annual report stated:

Our products have been well received in the United States, where the carbonated beverage market size and per capita consumption are higher than in many of our existing markets. Although we are only in the early stages of our United States marketing investment plan, our sales in this market have increased from $4.4 million in 2007 to $39.8 million in 2010, more than doubling in each of 2009 and 2010 as compared to the prior year. Our growth in this market has been driven by recent retailer launches including Bed, Bath & Beyond, Bloomingdale’s, Le Gourmet Chef, Macy’s, Sur la Table, Williams Sonoma and others. In the United States market, we continue to engage in discussions with existing retailers on expanding distribution and with additional national retailers on initiating distribution of our products. While we intend to maintain discipline in our retail rollout strategy, we are focused on identifying future retail partners, including opportunities with major mass retailers in the United States.

Oh I almost forgot (sarcasm). SODA’s products are now in Target! This will be huge for Q4 earnings. The shorts will not want to hold going into Q4, buy SODA before they cover.

SODA has a very healthy balance sheet with virtually no debt and plenty of cash. This will help it expand with PP&E and allows it to lever up to fund expansion if needed in the future without diluting current shareholders.

As of December 31,

(in thousands)

2007

2008

2009

2010

2010

Consolidated balance sheet data:

Cash and cash equivalents

1,928

4,349

4,185

52,900

$

75,028

Working capital(4)

8,610

7,415

5,086

27,164

38,526

Total assets

61,664

68,682

77,695

168,065

238,366

Loans and borrowings (including short-term obligations)

23,398

18,329

12,754

6,753

9,578

Shareholders’ loans

6,330

11,564

11,793

Total liabilities

53,301

59,372

61,039

59,943

85,017

Total shareholders’ equity

8,364

9,310

16,656

108,122

153,349

When SODA crushes earnings this Q3 and/or Q4 confidence and interest will soar. With only 14 million shares outstanding there is not a whole lot of supply out there for people to play this stock. The 6+ million shorts will be forced to cover, dramatically increasing the possibility for a short squeeze to take place, sending the stock sky high. This stock is not being shorted on fundamentals. The long-term risk that it is a fad will not matter as short term all signs point toward SODA continuing to grow earnings at a remarkable rate.

Management is inexperienced in talking to the Street and did not realize that what they thought was playing it safe the Street would interpret as negative guidance. This was evident in the presentation they made to investors in September at the William Blair Conference, where they retreated on some of the cautious remarks they made earlier in relation to growth that made the stock crash from $70 to $40 at the time.

The David Einhorn comments had nothing to do with SODA. They were focused on Green Mountain Coffee and its potentially questionable accounting. SODA’s balance sheet is very healthy and it doesn't play any accounting games. SODA is in its infancy and Green Mountain is a giant in relation to where the earnings and stock price of each have grown.

The new competition is not competition yet. It doesn’t even appear that the product is available to buy yet and SODA already has distribution in place around the world and is growing. Over the next two quarters, at least, this competitor will not impact earnings. In addition, the market has the potential to be huge and one more player won’t keep SODA from growing at the phenomenal rate that it has been.

SODA will rip in the next few months. Get on board.

Disclosure: I am long SODA.

Source: Why SodaStream Will Rip In The Next 4 Months