Even though last year’s results suggest the company will dramatically increase earnings beyond the original 25% and updated 27% growth rates, the above analysts don’t appear to see it that way. Based on the $50 million of adjusted net income last year, only a 30% gain would provide the company with $65 million of income. Based on 21 million shares outstanding, the company would earn over $3 in 2013 alone.
Relative valuations
When comparing Sodastream International Ltd (NASDAQ:SODA) to other fast growing stocks, the valuation doesn’t add up for a reason to downgrade the stock. A perfect example is the recent Noodles IPO where the stock has slower growth, a smaller revenue base, yet a similar market cap. Sure, Noodles has the ability to grow the store base for years, but SodaStream is now penetrating the soda crazy North American markets of the U.S. and Mexico. As an investor, would you rather own another fast-casual dining concept or a revolutionary method of making soda?
On the other hand, Green Mountain Coffee is already worth $10 billion and faces intense competition in the single serve coffee market that it dominates. The stock, though, trades at 19 times forward earnings with a lower expected long-term growth rate. Sodastream International Ltd (NASDAQ:SODA) has growth exceeding 30% while trading at what could be only 15 times forward earnings. It doesn’t add up that an investor would buy Green Mountain Coffee at its growth rate while only paying half the growth rate for Sodastream International Ltd (NASDAQ:SODA).
Conclusion
Assuming the current growth rates, it is very possible that SodaStream could earn nearly $4 in 2014. With the stock only trading at 15 times those earnings, the recent and continuous analyst downgrades don’t add up. The long-term growth rate is listed at 25% and the company continues growing in the 30% range, suggesting the stock should be much closer to $100 than $50.
While the relative comparisons to Noodles and Green Mountain Coffee won’t matter if Sodastream International Ltd (NASDAQ:SODA) was to disappoint as Oppenheimer ponders, if the company keeps growing at a fast clip as expected, investors will be disappointed they didn’t scoop up shares on the current sell off.
Mark Holder and Stone Fox Capital Advisors, LLC own shares of SodaStream. The Motley Fool recommends Green Mountain Coffee Roasters Inc. (NASDAQ:GMCR) and SodaStream. The Motley Fool owns shares of Sodastream International Ltd (NASDAQ:SODA).
The article Why Do Analysts Keep Getting SodaStream Wrong? originally appeared on Fool.com.
Mark is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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