Back on February 29th, SodaStream (NASDAQ:SODA) announced Q411 results and provided a little nugget that apparently the whole market missed.
The company announced a change to reporting in the U.S. currency (USD) effective January 1st, 2012. Anybody following this company has known that it has reported in euros (EUR) and provided a translation to the USD. This is common of foreign companies. The odd part though is that popular finance websites such as Yahoo Finance (see below Figure 1), Reuters, and probably most others continue to report the analyst estimates in euros.
Figure 1 - Yahoo! Finance Estimates
In my nearly 20 years of investing, I've yet to encounter another stock where analysts didn't convert the estimates into USD. Even Chinese companies get the conversion. After all, what's the point in showing the PE ratio based on the USD stock price and the euro earnings? It doesn't match. In this case, it hurts the PE ratio to the tune of roughly 30%.
The bigger question now is why haven't analysts updated estimates to match the companies conversion on January 1st? Lets look at what the numbers should look like with a simple 1.3 conversion ratio in Figure 2.
Figure 2 - Estimates Converted To USD
|Earnings Est||Current Qtr.
Will the higher earnings provided by the conversion to USD be the catalyst for higher stock prices? It sure can't hurt considering the company guided towards 35% earnings growth in 2012. Yet the stock currently trades below 13x 2013 earnings. That is about as cheap as a growth company can be bought.
Of course, the biggest issue will be converting investors into believers. Too many people see the concept as a fad and others have been disappointed that growth in Q411 wasn't fast enough.
Either way, investors will find it difficult to locate many other stocks with legitimate 30% growth trading this low. The conversion to USD might just provide that extra boost.
Just to confirm that the numbers are listed in euros please see below 2012 guidance from the last earnings report.
The company expects full year 2012 revenue to increase approximately 28% over 2011 revenue of euro 222.7 million ($289.0 million per the convenience translation of 1.2973). The company also expects net income to increase by approximately 42% as compared with its net income of euro 21.2 million ($27.5 million per the convenience translation of 1.2973) reported in 2011. This guidance includes a share-based payment expense of approximately Euro 4.1 million in 2012 compared to share-based payment expense of euro 4.2 million in 2011. On an adjusted basis, excluding the share-based payment expense, 2012 net income is expected to increase approximately 35% over the Adjusted net income of euro 25.3 million ($32.9 million per the convenience translation of 1.2973) reported in 2011.
Note that the company has roughly 20.5M shares outstanding, so the adjusted net income guidance of 35% growth over last years EUR 25.3M equates to EUR 34M or EUR 1.67/share. The USD total is $44M or $2.16/share. It's definitely worth noting that the analyst estimates of EUR 1.61 are even below the EUR guidance of the company.
Don't be caught off guard when the company reports next. It will not surprise us to see SodaStream report over $0.50. Will the financial media attempt to compare that to the $0.36 listed? Either way, I'd expect blowout numbers for this cheap stock.
Disclosure: I am long SODA.
Additional disclosure: Please consult your financial advisor before making any investment decisions.