As with any Israeli company, the threat of war in the Middle East always causes investors to pause on investments in the region. Recent threats of military action in neighbor Syria only add to those fears. Possibly this is part of the reason that, despite all the positive news, Sodastream International Ltd (NASDAQ:SODA) continues to trade at market low multiples, even compared to slower growing Green Mountain Coffee Roasters Inc. (NASDAQ:GMCR) and Monster Beverage Corp (NASDAQ:MNST) .
While threats of war probably won’t ever go away, the market for home beverage machines has plenty of catalysts to reach its goal of $1 billion in revenue by 2016.
One big question that can’t really be answered is whether being headquartered in Israel causes a stock such as SodaStream to trade at a discount. The impact from a war in Israel could be great, with nine of the company’s 22 facilities located in that country. The company does operate six manufacturing plants outside of Israel, which provides some ability to continue producing products regardless of a war situation. Importantly, a large portion of SodaStream’s consumables are manufactured outside of Israel, with a syrup facility in the US and CO2 filling plants mostly in safe regions. Naturally, the company’s sales aren’t dependent on Israel, but war would greatly hamper its ability to manufacture new soda machines. With only 38% of sales from soda maker starter kits reported for Q2, war would harm the company, but it could possibly offshore manufacturing to third parties as well.
The question of whether SodaStream trades at a discount due to the Israeli fears is apparent. Both Green Mountain Coffee Roasters Inc. (NASDAQ:GMCR) and Monster Beverage Corp (NASDAQ:MNST) trade at higher forward multiples, yet offer well-documented lower growth potential. See the below forward P/E chart:
Even more interesting, the adjusted EPS for Sodastream International Ltd (NASDAQ:SODA) would place its forward multiple closer to 16.
Other success stories
If not for the threat of war in Israel, the other main fear is always that SodaStream can’t compete against Pepsi or Coca-Cola. Investors argue that these megacap stocks will eventually stall growth at SodaStream via competitive pressures. That same argument didn’t pan out with Green Mountain Coffee Roasters Inc. (NASDAQ:GMCR) or Monster Beverage.
Green Mountain turned the stale coffee business on its head by developing a home brewing system loved by consumers. As with Sodastream International Ltd (NASDAQ:SODA), the market has long expected a larger competitor to crush Green Mountain. Because of patents and first mover advantage, the company has been able to keep competition at bay. Green Mountain Coffee Roasters Inc. (NASDAQ:GMCR) now sports revenue of more than $4 billion, yet it still generates revenue growth in excess of 10%.