Why Do Analysts Keep Getting Sodastream International Ltd (SODA) Wrong?

As quickly as Sodastream International Ltd (NASDAQ:SODA) finally gained some strong interest from the market, the analyst community smashed the stock with downgrade after downgrade. The company continues to under promise and over deliver, with results beating expectations quarter after quarter. The stock, though, has plunged $18 in the last month and now trades at less than its growth rate that has been reaching over 30% lately.

The company is a leading manufacturer of home beverage carbonation systems sold at major retailers around the world with a primary target of growing in the Americas where soda usage is significantly higher than in Western Europe. The stock recently surged as traders thought The Coca-Cola Company (NYSE:KO) or PepsiCo, Inc. (NYSE:PEP) would make an offer. As that theory has unraveled lately, analysts and the media have started hitting the exit button, providing yet again another attractive entry point.

The stock has historically traded at sub-growth rate multiples for various reasons, whether from the company originally reporting in Euros or the current focus away from adjusted earnings. The question is, whether the stock will reach multiples compared to its historical and projected growth rates, or will it remain at a cheap valuation that appears crazy.

Several darling stocks have lower expected growth rates, yet trade at massively higher valuations. As an example, both Noodles & Co (NASDAQ:NDLS) and Green Mountain Coffee Roasters Inc. (NASDAQ:GMCR) trade at higher multiples, yet offer lower growth rates.

Analyst downgrades

After huge gains in early May, both Deutsche Bank and JPMorgan downgraded the stock with price targets around $70. At the time, it stopped the rally in the stock momentarily until the buyout rumors helped shoot the stock up to as high as $77.80.

Now, another analyst and a media outlet have turned sour on the stock, sending it back to very cheap valuations for an exploding growth stock. First, on July 9, The New York Post claimed neither The Coca-Cola Company (NYSE:KO) nor PepsiCo, Inc. (NYSE:PEP)are interested in buying the company. Second, on July 12, Oppenheimer cut the rating on the stock down to “Perform,” apparently on thoughts that earnings could be volatile for the rest of the year. It previously had an $85 target on the stock that it removed.

Talk about a couple of news items with no apparent value to any long-term investor yet destructive to the stock in the short-term.

Substantial positive guidance

The key to investing in Sodastream International Ltd (NASDAQ:SODA) or any other stock is understanding the potential so that an investor can react when news damages the stock price.

The company provided updated guidance for 2013 in the Q1 2013 earnings report that should’ve attracted investors to prices much higher than the current level. It guided towards revenue surging 27% above the $436 million reported for 2012. More importantly, the adjusted earnings were targeted at 27% above the $50 million reached last year.