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Prior to the open on Wednesday, SodaStream (NASDAQ:SODA) posted earnings that handily beat analyst estimates yet again. The report initially sent the stock soaring nearly 10% in pre market trading yet again. The stock though swooned intra-day to only hold on for a 4% gain. Compared to the 2.5% losses in the U.S. equity markets, the trading in SodaStream actually fared well compared to the past.

The company is a leading manufacturer of home beverage carbonation systems.

Along with reporting 49% revenue growth, the company also raised guidance for 2012. Normal stocks would've soared 20% on such strong results for a lowly valued stock. SodaStream now only trades at around 11x forward earnings with forecasted growth of 50% this year.

Q3 Highlights

Below are the highlights from the Q3 earnings report:

  • Total revenue increased 48.7% to $112.5 million from $75.7 million in the third quarter 2011.
  • Net income increased 65.9% to $16.8 million compared to $10.1 million a year ago, and Adjusted net income was $18.2 million compared to $11.5 million last year.
  • Diluted earnings per share increased 66.7% to $0.80, compared to $0.48 in the third quarter 2011 and Adjusted diluted earnings per share were $0.87 compared to $0.55 a year ago.

Growth numbers remain impressive as the company continues to expand aggressively in the US and Japan. In fact, growth in Asia-Pacific was over 140% led by Japan. More importantly, the more established Western Europe market continues to grow at 33%.

Even more importantly, the company saw a smashing 55% growth in consumables.

The company reported adjusted earnings of $0.87 compared to analyst estimates of only $0.72 while revenue of $112M solidly beat the $103.5M estimate. The huge beat benefited from a $0.10 tax gain.

Guidance

  • The Company now expects 2012 revenue to increase approximately 46% over 2011 revenue of $289.0 million, up from its previous guidance of 40%.
  • The Company now expects 2012 net income to increase approximately 59% over 2011 net income of $27.5 million, up from its previous guidance of 55%. This guidance assumes full year gross margin of approximately 54.5% and includes a share-based expense of approximately $5.6 million.
  • Gross margin for the fourth quarter 2012 includes a higher mix of third party manufacturing and additional transportation expenses in order to meet the high demand for several new product launches scheduled for the holiday season.

Again similar to the last several earnings reports, the guidance for the rest of the year easily beats estimates. The company now expects adjusted earnings of roughly $2.40 for 2012 compared to analyst estimates of $2.25. Just as projected in our article after the Q2 earnings report.

The estimate for Q4 comes in at $0.56 when excluding the one-time transportation charges for Hurricane Sandy. Combined with new products such as the Source soda maker and a tight holiday schedule, the company ran into shipping issues requiring airfreight instead of sea.

Valuation

The stock currently trades at extremely low multiples of only 15x current year updated earnings. The multiple drops to nearly 11x forward earnings when assuming earnings reach $3.15 for 2013.

Relative Value

In comparison to other fast growers, SodaStream still has a very strong relative value. As pointed out after the last earnings calls, the stock has as much or more growth than these other high growth companies, yet it has half the earnings multiples as them. In fact, the value has gotten even better with the increased growth from SodaStream.

3D Systems (NYSE:DDD), Rackspace Hosting (NYSE:RAX), and The Fresh Market (NASDAQ:TFM) are all hot stocks in attractive growth sectors. See the table below for a comparison of the relative values:

Table - Relative Value Comparisons

Stock

2012 Revenue Growth (%)

5 Yr. Earnings Growth (%)Forward Earnings Multiple
SodaStream463013

3D Systems

521428
Rackspace Hosting283157
The Fresh Market212335

* All numbers sourced from Yahoo! Finance.

Note the forward earnings multiple for SodaStream has yet to be updated and could easily fall to the 11 range.

Compared to the last quarter, the other stocks generally became more expensive while SodaStream became cheaper. It was the only stock to increase the revenue growth rate while also seeing the multiple decline.

These analyst forecasts present the most puzzling scenario. Somehow the analysts expect the long-term to be very bullish for the company yet not compelling enough to push the stock to clients. If the numbers were truly believed, the stock would be considerably higher.

Competition

The new sales agreement between Primo Water Corporation (NASDAQ:PRMW) and Cuisinart to sell sparkling beverage appliances, while a threat, could easily lead to growing the category. Per the earnings call, new competitors in other countries have flooded the market with advertising that has only lead to expansion of the category and very little lost market share.

The company now has 9,000 gas exchange locations in the U.S. making it virtually impossible for a new entrant into the sector to effectively compete against SodaStream. Clearly the expanded marking budget in the sector could easily benefit the company more than any threat of lost market share from a growing market.

Conclusion

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.

The company has a bright future as new products such as the SodaCaps provide growth opportunities. Not to mention the expansion into China and India will provide catalysts for more growth. Russia as well provides opportunity for higher growth, as the previous distribution plan wasn't successful.

Investors should snap up the stock as traders overly focus on every possible negative outcome. Whether the new competitive threats or fears that the retail base has maxed out, the negatives are constantly smashed by SodaStream ever earnings report. With the stock holding up strong on Wednesday in the face of a horrible market, the stock might finally be setting up for a run to a reasonable valuation.

Source: SodaStream's Relative Value Continues To Grow

Additional disclosure: Please consult your financial advisor before making any investment decisions.