is testing out soda in its coffee stores, latching on to the trend made popular by Sodastream International Ltd (NASDAQ:SODA). It’s a nice idea, but this fad can only last so long and isn’t likely to turn the company’s afternoon business around.
The high water mark, however, was reached in April of 2007. The amazing advance this year has taken the shares from around $0.25 a share to about $0.60. Since 2007, the company’s top line has fallen 60% and earnings have been mired in the red. There’s a reason why it’s a penny stock.
Fancy sodas and other drinks can quickly gain traction, but can also rapidly fall out of favor as fickle consumers jump on the next fad. Jones Soda Co. ( USA ) (OTCMKTS:JSDA) is a prime example.
The “It” drink
Sodastream International Ltd (NASDAQ:SODA) sells a machine that carbonates water and a collection of drink flavors used to make homemade soda. The “technology” Sodastream International Ltd (NASDAQ:SODA) is based on is commonly known as a soda siphon, and it is anything but new. All Sodastream International Ltd (NASDAQ:SODA) has done is build a “system” around this old technology. That’s not much to build a business off of, but it has captivated consumers.
The top line has more than doubled over the past three years to $436 million in 2012. Earnings have gone from just under a dollar in 2010 to just over $2.00 per share last year. Its price to earnings ratio is about 27, that’s expensive even though earnings have doubled in just a few years. If that growth doesn’t continue, the shares are likely to fall back to Earth. Most investors should stay on the sidelines.
Coffee and soda
Coffee house giant Starbucks Corporation (NASDAQ:SBUX) sports a P/E near 35. That’s backed by sales that have increased from around $10 billion at the end of the 2007 to 2009 recession to a little over $13 billion last year. Earnings more than tripled over that span, hitting nearly $1.80 a share last year. The company is a category killer with a long history.