Sodastream Could Be a Threat to 'Big Soda'

TheStreet.com
Ribbon Cutting At The American Pavilion - The 66th Annual Cannes Film Festival
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CANNES, FRANCE - MAY 17: Sodastream products are displayed at the ribbon cutting at the American Pavilion during the 66th Annual Cannes Film Festival on May 17, 2013 in Cannes, France. (Photo by Danny E. Martindale/Getty Images)

NEW YORK (TheStreet) -- What can be cheaper, more convenient and better for the planet than making your favorite soda at home?

Sodastream International is the answer. This company is a manufacturer of home beverage carbonation systems, which transforms water into soft drinks/sparkling water.

Could this company be a threat to Big Soda including Coca Cola , Pepsi , Dr. Pepper and the other soda companies?

It must be since a report in the Calcalist, an Israeli financial newspaper, on Thursday said Pepsi is talking about buying Sodastream for $2 billion. Pepsi denied the report to Reuters. SODA recently rose over 5% to $73 on the news.

What makes Sodastream a product that would draw the interest of a Pepsi? I have a Sodastream system at my office and I have one at home so I can tell you -- convenience.

It just seems that whenever you're really feeling like having a nice cold soda, you're always out. Next comes the trip to the grocer, standing in line, lugging the bottles home and waiting for them to get cold.

But if you have a Sodastream system in your home and/or office, you can choose your degree of carbonation and syrup based on your preference. Sodastream has dozens of popular flavors, both regular and diet, and it is adding new flavors all the time.

Sodastream is currently a $1.45 billion dollar company, and it's really starting to take off again.

Data from Best Stocks Now App

Let's first take a look first at the performance of the stock. Sodastream first went public in 2010 at about $25 dollars per share. Today it's at about $70 dollars per share. Not a bad IPO -- take that Facebook .

The stock is up 120% in the last 12 months. The stock gets an "A+" momentum grade right now as it's one of the hottest, strongest stocks in the market.

Data from Best Stocks Now App

Sodastream obviously does not have a three-, five- or 10-year average yet. It is a work in progress.

When I wrote my book "Best Stocks Now!" a few years ago, one of the stocks that I featured was Green Mountain Coffee because it had a similar type of concept as SODA.


You could make a single cup of coffee without having to go to an actual store, wait in a line, fight for a parking spot, etc. The stock was trading at $41 at the time. The stock hit $116 seven months later.

It was one of the biggest winners of all time in the market. Also consider that Green Mountain was at one time a $1 stock. Well, I think that Sodastream has a similar model to Green Mountain Coffee.

While I love stock performance, I also demand value in the stocks that I buy. I have seen too many high fliers over the years get their wings clipped because of high valuations. Let's take a look at Sodastream's current valuation.

Data from Best Stocks Now App

The company is expected to be able to grow its earnings by 25% per year over the next five years. This is the consensus analyst estimate. Sodastream has been growing earnings by 144% per year over the last five years.


It has been one of the fastest-growing companies from an earnings standpoint in the entire market. This is also one of the strongest growth stocks going forward in the market.

SODA is currently trading at 21.8 times forward earnings. This means SODA is still trading at a discount to its growth rate. It has a PEG ratio of 0.89.

When I take the current earnings of SODA, carry them at a 25% rate over the next five years and apply a multiple that I think is appropriate, I come up with a target price of $126. The company is currently trading at $70 dollars. Therefore, I think there is lots of upside potential.

I require three things in stocks before I buy them: Performance, value and a healthy stock chart. Let's next take a look at a one-year chart of the shares:

SODA passes my performance test. SODA passes my valuation test. SODA has a good, healthy stock chart. Now if we can just keep this market from rolling over!

Of the 3,384 stocks that I track on a daily basis, SODA comes in at number 61 and earns an overall grade of "A."

Data from Best Stocks Now App

At the time of publication aggressive-growth clients of Gunderson Capital Management are long the stock.

This article was written by an independent contributor, separate from TheStreet's regular news coverage.

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