What is “America’s Next Iconic Brand?”

Which beverage company is the Oxford Club teasing as the up-and-coming competitor for Coke and Pepsi?

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Today we’re working from a short and “low on clues” ad from the Oxford Club, but several readers have asked and I’m always interested in investing in strong brands, so I thought we should at least see what the Thinkolator says.

The pitch is for Oxford Club membership, and the tease is that the latest issue of their Communique includes a recommendation to invest in “America’s Next Iconic Brand.” So what is it?

Well, here’s what we get by way of clues:

“Coca-Cola and Pepsi have stood unchallenged for decades, but are now facing a new contender.

“Yet most American’s have never heard of it…

“It’s a small company that’s seemingly coming out of nowhere.

“Though this company is less than 1% of their size, its sales are growing 20 times faster… due to widespread popularity with America’s youth. Just take a look at this chart tracking earnings growth over the last three years….”

I didn’t copy the chart, but it indicates that this company has grown earnings by 20%+ in 2010, 45% in 2011, and 50%+ in 2012 — while KO and PEP have mostly shown comparatively flat or declining earnings. The data that informs that chart is kept somewhat vague in the ad, but we’ll use it to check the Thinkolator’s results.

More?

“With the company bringing in multi-million dollar annual sales and double-digit profit margins, it only stands to get bigger in the months ahead.

“Consider… If the company grew to just 3% of the size of Pepsi, the share price would have to triple or more.”

And, of course, there’s a sense of urgency — why else would you quickly reach for your wallet?

“… this invitation is only open until Wednesday, May 1 at midnight. So please act quickly.”

That’s just the “special” deal on Oxford Club membership, of course, there’s not necessarily any particular reason the stock will be different tomorrow than it is today — but with that in mind, what is this secret stock?

Well, those clues are thin, but the Thinkolator is mighty and, well, there just aren’t that many beverage companies that could match our tease. So which one is it? We get a pretty high-certainty answer that this must be: SodaStream (SODA)

You’ve probably seen a SodaStream device, or heard of the stock during it’s sparkling performance since going public a few years ago — this is basically a modern day version of the rat pack’s soda siphon, a countertop device that charges your tap water with CO2 that you can then flavor (if you want to) either with your own mad scientist formulations or with prepackaged syrups that Soda Stream sells and that mimic popular drinks, including Diet Cola, Dr. Pete, and pretty much any other popular soda flavor you can think of, including energy drinks. The company has been around for more than 100 years, and is headquartered in Israel and has been a significant player in the European market for a long time, but it’s only been in the last five or six years that they’ve tried to become a substantial US competitor and build up their distribution network here, funded in part by their IPO in the US in 2010.

The basic business model is very familiar — think of it as razor and blade, or ink and printer, or whatever comparison you want to use. They make some money or break even by selling their carbonating machine (usually a “starter kit”), and then consumers are locked into the machine so they make much higher-margin sales of recharged air tanks or pouches of flavored syrups.

That’s why Gillette became a massive success, and why the Da Vinci surgical robot is making millions, and why HP and Epson raked in high-margin bucks for decades giving away printers and selling ink — once you’re locked in to a product, you make purchases of replacement parts or accessories or consumables for a long time. It’s also what appealed to investors about perpetual headline maker Green Mountain Coffee Roasters (GMCR) and their Keurig machine and K-cups (though the loss of the patent on those K-cups is a risk).

SODA is pretty much the only notable, growing publicly-traded soft drink company that’s priced at around a billion dollars — meaning, it’s less than 1% the size of either Coca Cola or PepsiCo but still big enough to be taken seriously (and match the few teaser clues). There are other upstart beverage companies trying to take share from Coke and Pepsi, including fairly large growth darlings like Monster Beverage (MNST — the former Hansen) or Dr. Pepper/Snapple (DPS), but those are not growing anywhere near 40-50% and they’er already close to $10 billion companies. There are also smaller ones like Reed’s Ginger Brew (REED) or Jones Soda (JSDA), or any number of “functional drink” purveying penny stocks, and others that might feasibly be considered competitors like private-label beverage company Cott Corp (COT), but nothing matches SODA for growth and size.

I’ve not owned a Soda Stream device and I’m not a big soda drinker, but it looks pretty simple and it could certainly save money if you drink cases of Diet Coke every month — perhaps more importantly, it’s also making a “green” pitch, particularly to younger consumers who are already getting the message about the wastefulness of the bottled water industry. Shipping a soda stream device and a few small bottles or pouches of flavoring is much less energy-intensive than driving a few cases of soda around in a truck. Soda and bottled water are fairly decentralized already, I suppose, with regional bottling plants, but there are still lots of gallons of diesel fuel burned for each truckload of Coke bottles delivered to every convenience store in America. So that’s part of the marketing appeal, and they juiced that appeal even more by getting their proposed Super Bowl ad banned — you can see that ad here if you’re curious:

SODA is clearly a momentum growth stock, it has been putting up great numbers and is growing earnings at better than 40%, which makes their trailing PE of about 25 look quite reasonable. They missed the earnings estimate by a few cents last quarter, but analysts still think that while growth is tapering, it will continue to be very strong — 25% earnings growth next year on a 15% increase in sales, and 30% earnings growth on average over the next several years, so analysts are looking for strong top and bottom line growth and margin expansion, which is a recipe for spectacular stock performance.

Will it work out? Well, in my few minutes looking at the numbers I can’t tell you that — I will note that there is a HUGE short position in the stock, more than 40% of the free float is sold short (meaning investors are betting it will fall), so there are some smart people who are betting the other way, though the short position was even larger earlier in the year. Earnings are expected to come out on May 8, so that’s your next potential catalyst — a lot of the questions and concerns for SodaStream have been operational over recent quarters, with cost management and the rush to get product into stores for the holiday season and distribution problems raising some questions. SodaStream is an old company, they’ve been selling their evolving products for decades, but this push to become a major player in the US soda market is certainly a higher risk/higher reward proposition — I haven’t followed their quarter-by-quarter progress, but the current numbers make it look like they’re making the right moves.

You can check out the last quarterly conference call transcript here to see the kinds of things analysts will be looking for — SODA is still trying to expand distribution, and they recently made a deal with Cott to produce more flavors in the US to improve availability, and with growth of machine sales still very strong in the holiday quarter I expect they haven’t come close to exhausting their addressable market, and I haven’t noticed any competitors of note coming out of the woodwork yet, so if you think the appeal will continue to grow for this product there’s every chance it could be a good investment. Just remember that with growth stocks come growth expectations, those short sellers are there for a reason. Big short positions amplify stock moves sometimes, so if, for example, SODA comes out with a blowout performance next week the stock might rise even more dramatically because the short sellers could be forced to “cover” their short positions by buying the stock — that’s called a “short squeeze” and it’s not necessarily predictable, but it’s a possibility. On the flip side, of course, if they come out with a quarter that’s much worse than expected, or talk about further distribution bottlenecks and talk down the rest of the year’s expectations, the stock could drop dramatically as momentum jockeys move on. It’s not a dramatically overpriced stock, certainly not for the growth numbers they’ve been putting up, but it is priced for growth.

I don’t know what numbers the short sellers are looking at, but I suspect they’ll pay close attention to sales of machines, the status and costs of the distribution network, and how the numbers look for air tanks and flavor pouches versus machine sales — ie, looking at whether all those folks who got a SodaStream for Christmas are buying up flavor refills. I haven’t thought much about this stock since the IPO, but I’ll certainly take a gander at their release next week.

There’s a good article about SodaStream here from the New Yorker, FYI, in case you’d like more of a “big picture” thought about the company’s prospects. And I’m sure there are plenty of readers out there who’ve had their own experiences with the stock or the product, so feel free to share your thoughts or opinions with a comment below. Or, of course, you can tell me if you think the Thinkolator’s full of gas on this one and missed the answer.

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43 Comments on "What is “America’s Next Iconic Brand?”"

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Roger Bond
Guest
0
May 1, 2013 3:17 pm

I’m a soda drinker and never heard of them. Thanks for Thinkolatering it out for us.

Roger.

Deborah G Flynn
Guest
0
May 1, 2013 3:20 pm

Have you ever tasted their “look a likes?” YUCK not even close and after a while the novelty wears off.Americans are like that they always go back to convenience. Why pay $1-2 a pouch or thereabouts when you can buy Coke and Pepsi [My Fav] on sale for 20 cents a can? Litres routinly go on sale. To me its just one more designer appliance to be shoved under the counter when the kids get tired of it. Me? i don’t like anything but real Pepsi. There are smart people shorting it for the same reasons A fad

pedrobrophy
Member
0
pedrobrophy
May 1, 2013 3:24 pm

that was not an active link to the New Yorker article…do you have that link?

Roger Bond
Guest
0
May 1, 2013 3:25 pm

Wow 20cents/can? Best I can ever find anymore is 5.98/case of 24 at Walmart (25 cents/can ignoring sales tax), and sometimes it’s 6.98

I’m with you, though, at 25 cents a can I don’t mess with the generics – only when the price surges.

Thommo
Guest
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Thommo
May 1, 2013 9:17 pm

WOW 25c/can for coke. In Australia it can cost nearly $4/can with a tank full of gas.

Regular supermarket price is >$1 and discount seldom <80c.

Australia is now a very expensive place to live. A cold six-pack of beer is abt $10.

And we have sodastream here but never tried it. Is SODA a share in the international company or just the US distributor?

Manfred
Guest
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Manfred
June 28, 2013 9:40 pm

Not sure where you shop, but prices are $0.75/can in supermarkets in Australia. And around $0.40 on special.

Remember they are talking above about cases, not individual cans.

Understandably prices are better in the US. They have so much more volume. But it’s nowhere near the price you claim.

Richard
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Richard
May 2, 2013 6:57 am

No wonder the US is full of overweight people…
Cheap sugar water instead of cheaper plain water.

Russell Golde
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Russell Golde
May 1, 2013 3:38 pm

I thought about buying this machine once, not for soda, but to make sparkling sake which is about $7 for a small bottle. While researching it I found that people were getting annoyed that they could no longer refill the co2 cartridges themselves and the company was moving them to proprietary co2 cartridges to lock them into their products, unless you drink a lot of soda this will not work for the reasons mentioned above.

Mike Smith
Guest
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Mike Smith
May 1, 2013 3:56 pm

Travis, my son uses this for his three kids and swears by it. They are on a very limited budget so from that standpoint I think there definitely is a market for it. That said, I cannot ever see it setting alongside the likes of Coke and Pepsi as a “REAL” household name. We all missed the easy money in this one!

olivan leach
Guest
0
olivan leach
May 1, 2013 10:40 pm
John I am with you on the pepsi swill I can’t stand the stuff. It may be because I am from the south were we drink coke. As for the soda pop machine I want go say it want make money. I know I would never buy the thing because I am a ice tea drinker that me being from the south were we drink tea. Not the hot stuff. That’s what coffee is for. The last time I got on here and said a stock would not make it it made a fool of me. That internet co. that… Read more »
Richard
Guest
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Richard
May 2, 2013 6:55 am

On a budget??
Water is cheaper and healthier than gassy sugar water.

John M. Chenosky, PE
Guest
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John M. Chenosky, PE
May 1, 2013 4:41 pm
Not withstanding the economics I live in the country with my own well water that is not contaminated with shirt from every community’s waste water along a freshwater tributary. Are we certain that the necessary quality control procedures are followed? As a retired chemical engineer I know that some bottling facilities have to use reverse osmosis, deionization or, distillation to purify their water. That is expensive. Does profit margin squeezes effect the end product? I like the idea of using my own water source and not worry about a jihadist doctoring my diet coke–how anyone drinks that pepsi swill is… Read more »
Mario
Guest
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Mario
May 1, 2013 4:56 pm

Travis, the Thinkolator got it right. It is SODA. But I will stay with my Diet Coke.

jfenlin
Irregular
11
jfenlin
May 1, 2013 5:00 pm

VERY FAIR and Balanced intro Travis, I own at a very low price and have had very good luck trading around it with calls, haven’t had any called or bought back at a loss yet but might depending on what’s happening. THIS IS NOT A BUY WRIGHT scheme for me just like poppin’ out some calls instead of taking profits sometimes. Don’t always wait till expiration to buy back, I am NEVER long the Calls, Only short to flat and rarely 100% hedged on stock position but am right now

sagenot
Guest
0
sagenot
May 1, 2013 5:21 pm

What does NYC Mayor Bloomberg have to say? Isn’t he the Soda-in-Chief guy now?

ammonites
Irregular
1
May 1, 2013 6:03 pm
I bought a Sodastream machine in UK about 40 years ago. It’s not new technology. Most of the bits are still cluttering up my garage, but I haven’t been able to buy the CO2 cartridges for years. It’s a fad. I wouldn’t expect to make a fortune on the shares, but that said I have not researched the company, so that may not be fair to them. You have to buy the syrup from the company (which is their revenue stream) and the product doesn’t taste like the sodas you are used to. Frankly it’s a waste of time and… Read more »
George
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George
May 1, 2013 7:20 pm

Martyn,

You can buy ISI Co cartridges for that old soda machine on Amazon or Ebay. Vintage cocktails are back in style

Tim
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Tim
May 1, 2013 8:15 pm

Sodastream was big in the UK many many years ago. The fad lasted about two months after one Christmas period, then it was over. CO2 refils got hard to get, the flavours were so so (yes I had one) and became hard to find. Unless you are going to supply a LOT of people the machine wore out before you ever got anywhere near break even. The bottles and machine got yucky. Pet and glass can be recycled. My guess is this will rise and fall faster.

Bob R
Guest
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Bob R
May 1, 2013 9:11 pm

Nobody has mentioned that the 2-year chart shows that in August 2011, SODA fell from 80 to about 31 in just two weeks. That’s what the shorts have their eyes on.

Alex Martelli
Guest
0
May 1, 2013 9:30 pm
I’m a heavy drinker of fizzy water and love Sodastream just for that — carbonating my excellent tap water (it’s excellent even right from the tap, I run it through the fridge’s filter anyway just for the convenience of having it very cold;-). Never use any of the syrups — if I ever add anything to my water it’s freshly squeezed fruit juice (no I’m NOT a health nut, these are just my tastes). Accordingly (per Peter Lynch’s advice;-) I have patiently accumulated a SODA position at average cost basis around 37 and I keep writing puts to extend it… Read more »
kam
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kam
May 1, 2013 9:42 pm
Make my own soda using a polyester beverage bottle, a tubeless tire valve stem and a paintball CO2 tank. I use it to carbonate fruit juice and make my own version of “Quench”, a grapefruit citrus beverage that I used to be able to buy when I was a teenager. Some have questioned the safety of this type of CO2, but it is what home brewers have used in their beer since forever. If I have the time I also naturally carbonate root beer, ginger ale and cider using bakers or brewers yeast. Beats the socks off anything you can… Read more »
Barry
Guest
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Barry
May 2, 2013 1:59 am
I bought a SodaStream (then SodaClub) 8 years ago, and was so impressed that I became a dealer, and remain one of the few “grandfathered” independent dealers. We drink only seltzer at our house, but you can’t believe the loyalty and longevity of the customers. This is the most used appliance in our kitchen, and many others. We go through at least one or two large CO2 cannisters a month. That’s 110 bottles of seltzer each. I bought some of the stock about a year at about 30, and so far I have been as delighted with the stock as… Read more »
Richard
Guest
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Richard
May 2, 2013 6:52 am

Be aware that SodaStream is the object of BDS actions around the civilised world because
1) Factory is built on Palestinian land in the West Bank, at Mishor Edomim
2) Palestinian workers are paid less than half the minimum wage (i.e Slave labour)
3) Kav LaOved has described the factory as one of the worst in terms of working conditions.
i.e You would be profiting directly from peoples misery and oppression.
Caterpillar as almost as bad. They continue to sell D9 bulldozers that demolish houses and one of which was used to kill human rights worker Rachael Corrie.

John M. Chenosky, PE
Guest
0
John M. Chenosky, PE
May 2, 2013 9:44 am

Richard one of the unwritten requirements of this website is to keep your comments on point. I can’t speak to your 1-3 allegations not having the knowledge to dispute your claims, but they don’t belong here.
As far as CAT is concerned they have no control how this equipment is used. It could just as easily be a Komatsu.

Richard
Guest
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Richard
May 2, 2013 6:19 pm

What about Ethical Investing? Is there no place for that?
Is it just about money, or is conscience allowed some small say?
Yes, If Komatsu sold D9s, they would then be subject to BDS actions.

Would you suggest then that each and every one of the investors here invest in say, Remington, Colt, Smith and Wesson? After all, they are seeing significant sales and they can’t control the way their products are used, can they?
Self interest alone dictates that a prudent investor considers all significant factors and those I outline are of increasing significance.

Kirk Williams
Guest
0
May 23, 2013 8:39 pm
Hey, Richard. I understand you mean well, but results matter much more than intentions. This could sound kind of rough, I really just want you to think through what the consequences would be if you got what you wished for, so here goes. So what if the wage is low for the Palestinians working at the factory? At least they have a job. Everybody has to start somewhere. The people working there are obviously happy to have the job or they wouldn’t be working there. I have no issues with having the minimum wage lower for the Palestinians, unfortunately the… Read more »
hershkop28345
Irregular
127
hershkop28345
May 2, 2013 12:08 pm

Richard,
Sorry you have to throw in the anti-Israel diatribe.
While we are on the topic, Richard, please tell me about conditions for workers in
places like China which,unlike Israel, are not democracies.When you stop buying products from these places, then I would pay heed to your screed.Also, please tell us about the findings of the Israeli court which found that Rachel Corrie, an anti- American and anti-Israel agitator for the notorious ISM group,deliberately put herself in harm’s way.

Richard
Guest
0
Richard
May 2, 2013 6:34 pm
It appears that there are conflicting opinions as to what can and can’t be discussed here, even though such topics are discussed in the big world, outside of the USA. 1) Show me anywhere in China where Human Rights are as systematically and egregiously abused as in the West Bank or Gaza, with entire populations under continuous military control and “administration”, with consequent severe and ongoing problems in all areas of their lives. 2) Show me when an Israeli court has ever passed an appropriate sentence (sustained and/or upheld) against any member of the IDF for clear abuses of Rules… Read more »
vman0626
Member
0
vman0626
June 28, 2013 10:52 pm

Really? Guess you’ve never seen the photos of Rachel burning American flags or giving the USA her middle finger, or seen / heard the video / audio (which are easily found most anywhere on the web) of Rachel heaping abuse on America.

But hey! You can always find a stick to beat a dog, right?

Patsy Robinson
Guest
0
Patsy Robinson
May 2, 2013 12:16 pm

I appreciated Richard’s reply because I try to be as ethical as I can when I select stocks. Without this information, I might have considered SODA.

Richard
Guest
0
Richard
May 2, 2013 6:46 pm

Thank You Patsy, please to be able to help, but do not just take my word for it. Be aware there is lot of information that you can use to cross reference and check the history and facts about the entire ME situation, past and present. It takes time and effort, can be disturbing, but is worthwhile. After all, it effects US policy in that part of the world and therefore impacts the value of all of our investments…

Barry
Guest
0
Barry
May 2, 2013 3:45 pm

The ‘ethics’ of a product like this are akin to buying tobacco company stocks. Supporting ‘sugar water’ (Coke, Pepsi, etc.) supports bad health, disease, and increased health costs for the world. But you can’t knock the ‘success’ of Coke and Pepsi – they are American icons. Is there not something better to support?

Richard
Guest
0
Richard
May 2, 2013 6:35 pm

Colt??

FamePop - Blog View - Christian Louboutin shoes will never let you down.
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What is “America’s Next Iconic Brand?” | Stock Gumshoe

Ava
Guest
0
Ava
May 3, 2013 3:41 am

Certain political influences may effect the beverage market. Consider this. The state of California has just passed a law that will that will charge one cent per ounce of any beverage that contains sugar. This Obesity Tax is supposed to save children from making poor nutritional choices. What is more likely to happen is that people may choose to make their own beverages with a SodaStream (at least in California).

FarmGirl
Guest
0
FarmGirl
May 3, 2013 10:29 pm

I use it with stevia as a sweetener and organic root beer extract from an independent supplier. Kids love it, no sugar…what’s not to like?

Barry
Guest
0
Barry
May 3, 2013 10:48 pm

Very cool FarmGirl! Love the application. It sounds like a spinoff business in the making. Did not understand the power of the product. Thanks for this! Travis – you may be in for residuals if this takes off!

Myron Martin
Guest
0
August 3, 2013 5:19 pm
Good for you, it seems a majority of people simply “drink whatever tastes good for them” with no health concerns, and one of the most dangerous, is the “assumption” that the “govermint” wouldn’t allow the product on the market if it was not safe. What a naive belief, and for an example, when “refined sugar” came under increasing scrutiny (rightly so) the soda industry simply switched to artificial sweeteners that are even worse. In fact increasing evidence is building that America’s “obesity epidemic” is CAUSED by the switch to so called “DIET SODA’s” which is a misnomer if there ever… Read more »
blackapay
Guest
0
May 4, 2013 1:18 am

I’m a soda drinker, but up to a limit. Nice article, it emphasizes some good points. I read it and I can tell it’s very informative as well as instructive

Revernd Idaho Spud
Guest
0
Revernd Idaho Spud
May 5, 2013 8:49 am

Richard, does SODA march prisoners into their plant at gunpoint to work? If things are so bad at SODA then the Palestinians should go to work for an arab company in the area? Oh wait, there are none except for suicide vest manufacturing. Your attempt to blame Israel for the woes of Palestinions working at SODA ignores the fact that Palestinions spend more time fighting among themselves, you know, the Suni-Shia thing. Nice try Richard. LOL

Kirk Williams
Guest
0
May 23, 2013 6:51 pm
I’ve actually looked in to buying a soda stream machine, not so much the stock, though it could be a very good buy. I looked into it mostly as a cost thing. Would it save me money? When I added up the cost of buying the machine, refilling the CO2, and buying real Dr. Pepper syrup (yes, you can buy the real syrups to make what you want, you wouldn’t have to buy their syrups, though theirs are cheaper) it wouldn’t really save me much if any money. However, if you do a little digging there is an adapter sold… Read more »
Manfred
Guest
0
Manfred
June 28, 2013 9:37 pm

Not sure where you shop, but prices are $0.75/can in supermarkets in Australia. And around $0.40 on special.

Remember they are talking above about cases, not individual cans.

Understandably prices are better in the US. They have so much more volume. But it’s nowhere near the price you claim.

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