Prior to the open on Wednesday, SodaStream (SODA) posted earnings that handily beat analyst estimates and initially sent the stock soaring nearly 10% in pre market trading. Revenues soared 49% year-over-year and net income soared 43% from last year.
The company is a leading manufacturer of home beverage carbonation systems.
Even though the company also raised guidance, the stock ended the trading day in negative territory.
Below are the highlights from the Q2 earnings report:
- Total revenue increased 49.1% to $103.0 million from $69.1 million in the second quarter of 2011.
- Net income increased 43.9% to $9.5 million compared to $6.6 million a year ago, and Adjusted net income was $10.9 million compared to $7.9 million last year.
- Diluted earnings per share increased 40.6% to $0.45, compared to $0.32 in the second quarter of 2011 and Adjusted diluted earnings per share were $0.52 compared to $0.38 a year ago.
All solid growth numbers as the company continues to expand aggressively in the US and Japan. In fact, growth in the Americas and Asia-Pacific regions were both over 100%. More importantly, the more established Western Europe market continues to grow at 25%.
Sales and Marketing grew to 36% of sales suggesting that income could be even higher if the company hadn't chosen to ramp up advertising in the U.S. A big part of the increase went towards the Wal-Mart (WMT) launch.
The company reported $0.52 in earnings compared to analyst estimates of only $0.46 while revenue of $103M solidly beat the $90.6M estimate. The huge revenue beat further highlights how SodaStream could've crushed earnings with less spending on advertising. Just $1M less in advertising adds nearly $0.05 to earnings.
The company provided the below guidance via the earnings report:
- The Company now expects 2012 revenue to increase approximately 40% over 2011 revenue of $289.0 million, up from its previous guidance of 33%.
- The Company now expects 2012 net income to increase approximately 55% over 2011 net income of $27.5 million, up from its previous guidance of 50%. This guidance includes a share-based expense of approximately $5.6 million.
Again similar to the Q2 earning report, the guidance for the rest of the year easily beats estimates. The company now expects adjusted earnings of roughly $2.30 for 2012 compared to analyst estimates of $2.17.
Considering the company's penchant for easily surpassing these estimates, one can reasonably assume that the actual number could be closer to $2.40.
The stock currently trades at extremely low multiples of only 18x current year updated earnings. The multiple drops to below 14x forward earnings when assuming earnings reach $3 for 2013.
In comparison to some of the fastest growing companies, SodaStream has a very favorable relative value. The company has as much or more growth than these other companies, yet it has half the earnings multiples as them.
3D Systems (DDD), Rackspace Hosting (RAX), and The Fresh Market (TFM) are all hot stocks in attractive growth sectors. These stocks were selected to offer a comparison of the numbers to show the misguided reality that typically exists in the market. See the table below for a comparison of the relative values:
Table - Relative Value Comparisons
2012 Revenue Growth (%)
|5 Yr. Earnings Growth (%)||Forward Earnings Multiple|
|The Fresh Market||20||22||35|
* All numbers sourced from Yahoo! Finance.
Though these numbers are only as good as the data provided by analysts, this clearly highlights how cheap SodaStream trades today.
Do investors realize that SodaStream has much faster growth than The Fresh Market? Sure organic, healthier food is a hot sector these days, but the actual numbers aren't nearly as exciting as from the home beverage maker.
The company has some of the fastest growth rates yet the lowest forward earnings multiple by far. As an example, if SODA traded at the average multiple of this group of over 30x forward earnings, the stock would trade at over $90 now.
One of the biggest concerns is that home beverage making is a fad that will soon end. Similarly one would have to wonder if shopping at upscale grocery stores isn't a fad or 3D printing won't soon be replaced by something else.
SodaStream continues to report exceptional numbers that constantly smash analyst estimates. Unfortunately the stock sill lacks investor support as it trades at very low multiples compared to growth rates.
Seth Golden does an excellent job of outlining the business model for investors interested in minute details such as currency exchange issues and distributor additions. Anybody interested in this stock should read his articles.
Ultimately, most investments come down to whether an investor believes in the products and the management team. This company has done nothing but deliver quarter after quarter suggesting that investors should load up at these levels and benefit as the fad concept fades away.
Disclosure: I am long SODA.
Additional disclosure: Please consult your financial advisor before making any investment decisions.