It may not be good for you, but that doesn't not stop hundreds of millions of people around the world from drinking it every day. The sugary drink I am referring to is soda, or, depending on where you live, this fizzy beverage may otherwise be known as "pop".
TUTORIAL: Brokers and Online Trading

The traditional way of drinking soda is from a can, bottle, or at alocal restaurant. But the future may be making your own soda at home at a lower cost and - and at a lower cost to the environment. Israel-based SodaStream International (Nasdaq:SODA) manufactures home beverage carbonation systems that allow its customers to make soda at their convenience. The company also offers more than 30 different syrups that include regular and diet flavors.

SodaStream's Stream of Income
The company makes money by selling the machines that range from $80 to $200, but the real money comes from the supplies. The customer must buy the syrup, carbonators, bottles and bottle caps. Even though it could be less expensive than buying cans of soda at the grocery store, it is a steady flow of income for SODA.

When the company reported earnings this week, the stock surged 23% on a rise of unit sales by 99%. The total revenue was up 50% and net income increased by 38%. The numbers obviously impressed investors and the stock hit an all-time high volume. The stock trades with a hefty forward P/E ratio of 44, but if it is considered a growth stock by large investors, it could trade with a much higher multiple before the rally ends.

Trouble for Traditional Soda Companies
The two top dogs in the soda world are Coca-Cola Company (NYSE:KO) and PepsiCo (NYSE:PEP), both boasting market caps of more than $100 billion. Both stocks have done well in the past couple of years, with KO hitting a new decade high this week. PEP is not far behind, hitting a high and trading at its best level since 2008.

It is not fair to say both KO and PEP are scared of the new competitor, but I am sure they are watching the growth closely and are working on similar ideas. If SODA continues to grow customers at its current rate, there is a good possibility you will see the big-name soda manufacturers make a move into the home soda-making process. Or they can always buy SODA in a merger and benefit from an already established brand in the niche sector.

The only publicly traded company that I could find that is comparable to SODA is Green Mountain Coffee Roasters (Nasdaq:GMCR). GMCR is the maker of the Keurig single-cup brewing machines that coffee drinkers can use at home to make a variety of different coffees. SODA is similar in that it will look to capitalize on its customers' ongoing purchase of products, just as GMCR has in the past few years. I am not predicting this happens to SODA, but GMCR's stock price is up 41,000% since 1998. A $10,000 investment in October 1998 would have turned into $5.49 million. That is a lot of coffee.

The Bottom Line
It's hard to say where SODA is headed as this point, but investors seem to like it and it does have potential. If you're looking for an interesting small cap, this could be a good place to start your research.

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

Related Articles
  1. Stock Analysis

    Allstate: How Being Boring Earns it Billions (ALL)

    A summary of what Allstate Insurance sells and whom it sells it to including recent mergers and acquisitions that have helped boost its bottom line.
  2. Options & Futures

    Cyclical Versus Non-Cyclical Stocks

    Investing during an economic downturn simply means changing your focus. Discover the benefits of defensive stocks.
  3. Investing Basics

    How to Deduct Your Stock Losses

    Held onto a stock for too long? Selling at a loss is never ideal, but it is possible to minimize the damage. Here's how.
  4. Brokers

    The Next Industries Bound to be Uberized

    As more startups succeed with the sharing economy business model, investors seek out businesses poised to disrupt their industries like Uber.
  5. Economics

    Is Wall Street Living in Denial?

    Will remaining calm and staying long present significant risks to your investment health?
  6. Stock Analysis

    When Will Dick's Sporting Goods Bounce Back? (DKS)

    Is DKS a bargain here?
  7. Investing News

    How AT&T Evolved into a Mobile Phone Giant

    A third of Americans use an AT&T mobile phone. How did it evolve from a state-sponsored monopoly, though antitrust and a technological revolution?
  8. Stock Analysis

    Home Depot: Can its Shares Continue Climbing?

    Home Depot has outperformed the market by a wide margin in the last 12 months. Is this sustainable?
  9. Stock Analysis

    Yelp: Can it Regain its Losses in 2016? (YELP)

    Yelp investors have had reason to be happy recently. Will the good spirits last?
  10. Stock Analysis

    Has Urban Outfitters Lost its Way? (URBN)

    Urban Outfitters just made a bold move. Will it pay off?
  1. How do dividends affect retained earnings?

    When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
  2. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  3. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  4. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
  5. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>
  6. What is the difference between issued share capital and subscribed share capital?

    The difference between subscribed share capital and issued share capital is the former relates to the amount of stock for ... Read Full Answer >>

You May Also Like

Trading Center