Sodastream International Ltd (NASDAQ:SODA) has, again, gained a lot of attention after CBS banned its Super Bowl ad campaign. According to CBS, the company’s ad was directly attacking two of the biggest names in the soft-drink industry, PepsiCo, Inc. (NYSE:PEP) and The Coca-Cola Company (NYSE:KO). SodaStream does have a backup ad campaign, and will look for another big opportunity to air its original ad. In the meantime, competition between the three companies is as fierce as ever, and investors scanning the soda space are watching closely to see which of these soft-drink players provides the best opportunity.
Why SodaStream is a Good Buy
For decades, SodaStream has been successful in Europe, with Sweden being one of its strongest markets. Since its entry into the U.S market, its numbers have been looking good, with different opinions on whether the stock is a buy or a sell.
One of the product’s major selling points is its eco-friendliness. SodaStream lets users make their own sparkling water and soda, directly from tap water. This “razor and blades” model has gained a lot of popularity in Europe, as the company sells both soda makers and syrups or flavorings. Instead of buying cans and bottles regularly, users need the soda maker, which includes a reusable bottle for carbonated drinks.
Research shows that more than 60% of people like to go for environmentally friendly products. That suggests that SodaStream can be a huge success, since sodas are a part of most people’s daily lives. Pepsi and Coca-Cola have dominated the global soda market for decades with a variety of different products; however, their customers throw out thousands of cans and bottles every day.
Secondly, sodas created using the SodaStream machine are more nutritious, since they have less sugar and fewer calories. A lot of people might not be aware of this, but once the company’s ad campaign goes live, a lot of people might think about switching to personal soda makers.
Another reason to buy SodaStream stock instead of buying Pepsi or Coke is that SodaStream’s shares look extremely cheap compared to their growth potential. The last earnings report showed that the company’s revenue increased by nearly 50%, and earnings per share rose by 66.7%. Pepsi and Coke both trade at or near their true valuations, and their expected future growth looks weak, with Coke doing slightly better than Pepsi.
SodaStream doesn’t only earn money from the sales of its soda makers; it also maintains revenue from sales of CO2 canisters and syrups. This helps SodaStream maintain a high gross margin, close to Pepsi and Coke.