NEW YORK (TheStreet) -- SodaStream International (SODA - Get Report) , the home soda-machine maker, has lost more than 35% of its value year to date. Will its stock continue to fall or does the company have a silver lining?
The main factor that could turn the company's stock around is a potential buyout down the line. In the past year, SodaStream shares soared on speculations of a potential buyout by Coca-Cola (KO - Get Report) and PepsiCo (PEP - Get Report) . For now, these speculations have died down. But if another potential deal were to rise, this could pull back up the company's valuation.Read More: Warren Buffett's Top 10 Dividend Stocks
Without a buyout, it seems the company will keep losing ground. In the recent earnings report, the company revised down its 2014 guidance: Its revenue will rise by only 5% and not 15% as estimated earlier. The company continues to show lower profit margin and failed to expand its reach in North America.
Earlier this month Soros Fund Management, founded by George Soros, sold its stake in the Israeli company without providing any reasoning behind this decision.
In terms of valuation, SodaStream's current stock price isn't a bargain either. Its current valuation is high and its price-to-earnings ratio is 24.5. Coca-Cola and PepsiCo have a lower P/E of 22.1 and 20.8, respectively.
SodaStream's enterprise value (market capitalization plus debt minus cash)-to-EBITDA (earnings before interest, taxes, depreciation and amortization) ratio is 14.15. PepsiCo is 12.64. Coca-Cola's is 15.12. By this measure, SodaStream's stock is high compared to PepsiCo.
Even though SodaStream plans to increase its sales at a higher pace than Coca-Cola and PepsiCo, its current valuation isn't low enough to be a bargain even compared to these soft drinks giants, which also pay a hefty dividend. SodaStream's silver lining may be silver plated.
TheStreet Ratings team rates SODASTREAM INTERNATIONAL LTD as a Hold with a ratings score of C. TheStreet Ratings Team has this to say about their recommendation:
"We rate SODASTREAM INTERNATIONAL LTD (SODA) a HOLD. The primary factors that have impacted our rating are mixed ? some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its revenue growth, largely solid financial position with reasonable debt levels by most measures and good cash flow from operations. However, as a counter to these strengths, we also find weaknesses including a generally disappointing performance in the stock itself, feeble growth in the company's earnings per share and disappointing return on equity."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- Despite its growing revenue, the company underperformed as compared with the industry average of 9.3%. Since the same quarter one year prior, revenues slightly increased by 6.6%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
- SODA's debt-to-equity ratio is very low at 0.11 and is currently below that of the industry average, implying that there has been very successful management of debt levels. Along with the favorable debt-to-equity ratio, the company maintains an adequate quick ratio of 1.02, which illustrates the ability to avoid short-term cash problems.
- The gross profit margin for SODASTREAM INTERNATIONAL LTD is rather high; currently it is at 52.75%. Regardless of SODA's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, SODA's net profit margin of 6.54% compares favorably to the industry average.
- Despite any intermediate fluctuations, we have only bad news to report on this stock's performance over the last year: it has tumbled by 49.93%, worse than the S&P 500's performance. Consistent with the plunge in the stock price, the company's earnings per share are down 28.33% compared to the year-earlier quarter. Although its share price is down sharply from a year ago, do not assume that it can now be tagged as cheap and attractive. The reality is that, based on its current price in relation to its earnings, SODA is still more expensive than most of the other companies in its industry.
- SODASTREAM INTERNATIONAL LTD's earnings per share declined by 28.3% in the most recent quarter compared to the same quarter a year ago. Earnings per share have declined over the last year. We anticipate that this should continue in the coming year. During the past fiscal year, SODASTREAM INTERNATIONAL LTD reported lower earnings of $1.96 versus $2.09 in the prior year. For the next year, the market is expecting a contraction of 4.8% in earnings ($1.87 versus $1.96).
- You can view the full analysis from the report here: SODA Ratings Report