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.
It has also entered into a deal with Whirlpool’s KitchenAid brand to develop an in-home carbonated system. The KitchenAid soda maker is expected to be in retail stores in the fourth quarter of this year. The financial terms of the deal have not been disclosed.
Over the past few fiscal years, Whirlpool Corporation (NYSE:WHR) has been reporting declining year-over- year sales.The company has been constantly trying to develop new products like the KitchenAid soda maker. It has also introduced cost-cutting measures and is diversifying its business globally. These efforts by Whirlpool along with its deal with SodaStream will not only help the company in expanding its KitchenAid products around the world, but it will also help it in removing the geographical risks arising from its heavy business concentration in one particular region.
“KitchenAid is an iconic, global brand and we welcome them to the Sodastream International Ltd (NASDAQ:SODA) revolution,” SodaStream CEO Daniel BirnBaum said in a statement on the Fox Business website. Both the companies will leverage their strengths to reach to a broader worldwide audience.
While Samsung has been a key player in the home-appliances industry, KitchenAid has also become a leading maker of kitchen appliances and culinary tools. Both these deals will help SodaStream advertise its products on a large scale and give the company access to millions of Samsung and Whirlpool Corporation (NYSE:WHR) customers.
Foolish bottom line
Sodastream International Ltd (NASDAQ:SODA) has been showing great growth numbers. The company still has tremendous opportunities to grow in untapped markets like Brazil, Russia, India and China, or BRIC nations. Excellent strategies, a healthy balance sheet and enormous expansion opportunities definitely make SodaStream the top flavor of this season. I am bullish on this stock.
The article Add This Stock and Your Returns Will Pop! originally appeared on Fool.com and is written by aastha jhunjhunwala.
aastha jhunjhunwala has no position in any stocks mentioned. The Motley Fool recommends Green Mountain Coffee Roasters and SodaStream. The Motley Fool owns shares of SodaStream. aastha 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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