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Sodastream Can Add A “POP” To Your Portfolio

|Includes:SodaStream International (SODA)

Sodastream can add a "POP" to your portfolio

SodaStream International Ltd. (NASDAQ:SODA) engages in the development, manufacturing, and sale of home beverage carbonation systems that enable consumers to transform ordinary tap water instantly into carbonated soft drinks and sparkling water.

Some highlights about the company: (Taken from the company website)

• World leader in home carbonation

• 45 countries: 21 direct / 24 distributors.

• 60,000 stores (15,000 in US)

• 7 million active households

• Revenue projection: 2013: $565mm / 2016: $1bb

On October end, SodaStream came out with the below results.

  1. Revenue increased 28.5% to $144.6 million from $112.5 million in the third quarter 2012.
  2. EBITDA increased 18.0% to $21.9 million from $18.6 million, and Adjusted EBITDA increased 23.8% to $24.8 million from $20.0 million in the third quarter 2012.
  3. Net income was $16.4 million compared to $16.8 million in the third quarter 2012, and Adjusted net income was $19.3 million compared to $18.2 million in the third quarter 2012.
  4. Diluted earnings per share were $0.76, compared to $0.80 in the third quarter 2012 and Adjusted diluted earnings per share were $0.90 compared to $0.87 in the third quarter 2012.

The results were good except that it missed the revenue expectation of 145.2 million. The stock was beaten down around 20% after the results.

This stock has been growing at an annualized 3 year growth rate of around 30% in its EPS and Revenue. Its estimated 2014 EPS is around 3.30, which means the stock is selling @ 17 times its estimated 2014 EPS. Now this sets up a good point to enter this stock.

There are 2 ways by which an investor can invest in this stock for some potential good returns.

1. Covered call strategy:

Buy the stock and sell a Jan 15 70 call against it. The stock is currently selling around 56.25 and the Jan 15, 70 strike price is at a premium of 5.50 as of today (Nov 8th).

The net cost of this position using this strategy will be 50.75 and the profit is limited to 70, because of the Call position sold against the stock. One contract in option represents 100 shares.

2. Calendar Call spread Strategy:

The more aggressive among the investors can buy a Jan 15, 55 call and sell a Jan 15, 60 call against it.

Buy SODA Jan 2015 55.000 call @ 11.20

Sell SODA Jan 2015 60.000 call @ 9.15

Net Debit - 2.05

Maximum profit potential is 2.95 when SODA is above 60 during expiry.

Max Loss is 100% if SODA is below 55 during expiry. The investor also has an option to close both the legs of the spread before expiry if it moves up significantly from the current levels.

Above prices are calculated based on Friday (Nov 8) closing bid/ask price. The mid-point of the bid/ask price is taken for calculation.

So if the economy cruises along at the current levels and if there are no Global shocks then we can expect to a have good bonanza with the above strategies.

Disclosure: I am long SODA. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: Disclosure: I have a Jan 15, 55 – 60 call spread entered after the recent quarterly results, and no plans to initiate any new positions within the next 72 hours.The data and information provided in this is not advice, professional or otherwise, and should not be relied upon as such. The investments discussed in this may not be suitable for all investors. Investors must make their own investment decisions based on their specific investment objectives and financial position and using such independent Financial advisors as they believe necessary.

Stocks: SODA