The soda industry is one the biggest businesses in the world. Even though it is dominated by key players like Coca-Cola and PepsiCo, an Israeli-based company, Sodastream International Ltd (NASDAQ:SODA), has been in the news—for all good reasons.
Global markets continue to crumble because of the dollar strengthening and the U.S. markets have experienced volatility over the past few days. But one company which continues to grow and is looking strong is Sodastream International Ltd (NASDAQ:SODA). The company manufactures home soda makers, which transform water into flavored carbonated beverages. There have been reports that the huge success of the company has led to a possibility of buyout by PepsiCo. What makes SodaStream a good buy?
Excellent growth numbers
Sodastream International Ltd (NASDAQ:SODA) operates in more than 15,000 stores in the US alone, and has 60,000 stores spread across 45 countries. It has been growing at a solid rate in the last five years. The following table shows the growth in key variables from 2008 to 2012.
With a market cap of around $1.5 billion, SodaStream is currently trading at a forward P/E ratio of 21.9. Even though it might look slightly expensive, the company offers a quarterly earnings growth rate of 19.5%, which is quite impressive. The company also has a healthy balance sheet. With total cash of around $49.9 million, the company has only $8.1 million in short-term debt and no long-term debt.
The razor-blade model
The razor-blade model seems to be working well for Sodastream International Ltd (NASDAQ:SODA). This business model, which was invented and used by Gillette, aims at selling one item at a low price in order to increase the sales of complementary goods. SodaStream has been selling its soda maker at very low prices, which is leading to an increase in the sales of its carbonated refills and flavor packets.
This is supported by facts; sales of the soda-maker machines increased by around 30% while the sales of the flavor packets increased by 50% in the last fiscal year. Also, between fiscal years 2009 and 2012, the unit sales of soda makers have increased at a CAGR of 49%, while the flavored syrups have outperformed the sales of the soda maker and have increased at a CAGR of 57%.
The success of this model can be cited with the example of Green Mountain Coffee Roasters Inc. (NASDAQ:GMCR), which applies a business model similar to that of Sodastream International Ltd (NASDAQ:SODA) and has been enjoying huge success. The company, which makes single-serve coffee brewers, has entered into partnerships with big companies and market leaders like Unilever and Starbucks Corporation (NASDAQ:SBUX) for selling tea and coffee flavors. Green Mountain Coffee Roasters Inc. (NASDAQ:GMCR) has entered into a five-year deal with Starbucks Corporation (NASDAQ:SBUX), which will add new products to its K-cups line. This deal will increase Green Mountain’s sales consistently in the next five years. Analysts forecast 13% revenue growth for Green Mountain Coffee Roasters Inc. (NASDAQ:GMCR).
However there is one certain flaw of this model. As of now, SodaStream doesn’t face any direct competition from key players like Coca-Cola and PepsiCo. But as the company starts facing stiff competition, this model could become a threat, with the company finding it difficult to maintain its existing customer base.
The Samsung/Whirlpool deal
SodaStream has entered into two separate deals with Samsung and Whirlpool Corporation (NYSE:WHR). The deal with Samsung will involve the Samsung RF31FMESBSR Refrigerator with an integrated Sodastream International Ltd (NASDAQ:SODA) dispenser. This will take the refrigerators to a bubbly, new level — powered by SodaStream.