Sodastream International Ltd (NASDAQ:SODA) has experienced significant gain since November 2012, from around $33.50 per share to more than $71 per share. The stock has gone up a lot even after PepsiCo, Inc. (NYSE:PEP) denied the rumor that it was interested in acquiring Sodastream International Ltd (NASDAQ:SODA) for around $2 billion. Is SodaStream is a good buy after its significant gain on the market? Let’s find out.
A fast growing business with expensive valuation
Sodastream International Ltd (NASDAQ:SODA) is the maker and seller of home beverage carbonation systems, including soda makers and exchangeable carbon-dioxide cylinders through more than 60,000 retail stores in around 45 countries, under SodaStream and Soda-Club brand names. Most of its revenue, $113.3 million, or 54.4% of the total 2012 revenue, was generated from Consumable products while Soda makers and exchangeable CO2 cylinders produced around $87.2 million in sales.
In the past five years, Sodastream International Ltd (NASDAQ:SODA) has experienced great growth in both top and bottom lines. Revenue increased from $139 million in 2008 to $436 million in 2012 while net income jumped in a huge way, from $1 million to $44 million during the same period. In 2012, its EPS came in at $2.09. What I also like about SodaStream is its conservative capital structure.
As of March 2013, it had $287 million in equity, $50 million in cash, and only $8 million in short-term debt. The intangible assets were only around $42 million. Consequently, its tangible book value was $245 million. Sodastream International Ltd (NASDAQ:SODA) is trading at around $71.80 per share with a total market cap of $1.5 billion. The market values SodaStream quite expensively at 22.3 times its forward earnings.
The Frito-Lay business is PepsiCo’s largest income source
According to Haaretz, the publisher of Beverage Digest, John Sicher doubted the rumor because the deal would have disappointed PepsiCo, Inc. (NYSE:PEP)’s bottlers, which take care of PepsiCo’s beverage distribution. Even with the potential synergy between the two companies, I personally think that a $2 billion price tag would be quite a high valuation. Previously, when activist investors Nelson Peltz accumulated around 1 million shares in PepsiCo and 40.3 million shares in Mondelez International Inc (NASDAQ:MDLZ), the investment community speculated the push for a merger and/or spin-off between the two companies.
Although investors often think of PepsiCo as a soft drink company, its biggest profit source was its food business, Frito-Lay North America. In 2012, Frito-Lay North America delivered nearly $3.65 billion in operating income.
Mondelez, the food leader in emerging markets
Mondelez International Inc (NASDAQ:MDLZ), the owner of Cadbury, Oreo, Chips Ahoy, and Dairy Milk, is the leader in many food categories including Biscuits, Chocolate, Candy, and Powdered Beverages. Interestingly, Biscuits and Chocolate were its two biggest revenue contributors, with $11.15 billion and $9.36 billion, respectively, in 2012 revenue. Mondelez’s main playing ground is the BRIC region (Brazil, Russia, India, and China).
In the first of quarter 2013, Mondelez managed to deliver double-digit growth in China, Brazil, and India. Mondelez expects to produce around $1.55 to $1.60 per share, with estimated organic revenue growth of around 5% to 7%.
Mondelez and PepsiCo have similar earnings valuations, which is lower than the valuation of SodaStream. PepsiCo is trading at around $81.80 per share with a total market cap of $126.5 billion. The market values PepsiCo at 17.13 times its forward earnings. Mondelezis a smaller company with nearly $53 billion in total market cap. At $29.70 per share, Mondelez is valued at 17.1 times its forward earnings. In terms of dividend yield, investors might like PepsiCo the most with the highest dividend yield at 2.80%. While the dividend yield of Mondelez is lower at 1.80%, SodaStream has not paid any dividends yet.