SodaStream Intl (SODA) is still hot after its recent IPO and its outlook is looking pretty fruitful.
Estimates for this Zacks #1 Rank (Strong Buy) are showing excellent growth rates, but are the expectations too lofty?
Company Description
SodaStream is headquartered in Israel and makes home beverage carbonation systems. The company’s countertop unit quickly carbonates tap water which you can then add any number of syrups to, creating soda in your kitchen. SodaStream emphasizes its minimal environmental impact as well as its cost savings for customers.
Revenues are Soaring
On Mar 1 SodaStream reported its fourth-quarter and full-year results that showed impressive top-line growth. Revenues for the quarter were up 53% on the year and 59% for the quarter. The Americas posted 238% and 189% increases, respectively.
Earnings per share came in at $0.29, which was 18 cents better than expected. This was the first quarter that we were able to provide a Zacks Consensus Estimate, so it is the first earnings surprise since its Nov 2010 IPO.
A Great 2011 on Deck
In the same press release, SodaStream said that it expects a 25% increase in revenues. Analysts took the cue and raised estimates just after the announcement.
Analysts polled by Zacks are expecting EPS for 2011 to come in at $1.22, which is 8% higher than 2010. Next year’s estimates average $1.62, which represents a 33% growth rate.
Shares of SODA are trading at 35 times the 2011 estimates, but with a 30% long-term growth rate the PEG is coming in at 1.2. So, shares are fairly priced given the expected growth.
However, that could change since SodaStream filed for an additional offering of 1.2 million shares. Other shareholders are selling 3.8 million.
Now, that brings up a slight issue, because they already have over $60 million in cash. So, are they using the cash to expand? Or as a buffer if the public doesn’t embrace this new product as fast as they hope?
That is part of the risk with SODA. If they can grow as fast as expected, the dilution should be more than made up for with increasing revenues.
The Chart
So far investors have taken the additional shares with a grain of salt and have not pushed the price lower. There is a healthy amount of risk with this one, but if you’re willing, there could be a nice reward.
Bill Wilton is the Aggressive Growth Stock Strategist for Zacks.com. He is also the Editor in charge of the Zacks Small Cap Trader service
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