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TheStreet Open House

SodaStream Fizzles

NEW YORK (TheStreet) -- SodaStream (SODA - Get Report) had a very bad day yesterday. Shares fell nearly 26% on very heavy volume, as the company reported disappointing preliminary results for 2013. The crime committed by the company was revenue growth of 29% year over year, and adjusted net income of $52.5 million.

Unfortunately, investors were expecting much more, at least on the earnings side of the equation. The revenue miss was actually very small, just $5 million on a forecast of $567 million, which is less than 1 percent. The earnings miss was bigger; the consensus was expecting adjusted earnings of $65.4 million. The fourth quarter was evidently the problem, as the holiday retail season did not go as expected.

Investors' reaction to the negative news was fast and furious, as it often is in these cases. Something is clearly wrong when a company is valued at more than $1.04 billion at the start of the trading day, and $770 million at the close. So much for market efficiency.

SODA ChartSODA data by YCharts

There's a great investment lesson in all of this, a lesson that is often overlooked until it's too late. High expectations leave little room for error. When the results don't meet those expectations, the damage can be horrifying. Perhaps that's quite obvious, but that doesn't stop investors from continuing to make the same mistakes. They keep putting bets on companies with high expected growth, some of which may be fads. And they expect that growth to continue uninterrupted in perpetuity.

Here's a company that is essentially selling kits to make homemade soda. SodaStream's revenue has more than quintupled since 2009. It now generates more a half a billion dollars a year selling a gadget that lets you make your own soda on demand. That, to me, is quite remarkable. I am the first to admit that I've see this as just a fad: a machine that will ultimately collect dust, abandoned in the back of a closet, forgotten next to the bread maker that's never been used. But I actually give SodaStream a lot of credit. They have seized an opportunity that few knew existed, and have done so very profitably.

The problem is that investors have simply expected too much.

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