Value Line has initiated coverage of SodaStream International (SODA) in its flagship product, The Value Line Investment Survey. The company manufactures home beverage carbonation systems, which enable consumers to easily transform ordinary tap water instantly into carbonated soft drinks and sparkling water. Its products are environmentally friendly, cost-effective, promote health & wellness, and are entirely customizable. In addition, SODA’s offerings deliver convenience by eliminating the need to carry bottles home from the supermarket, to store bottles at home, or to regularly dispose of empty bottles. Educating consumers of these benefits is a key element of its strategy to build awareness, particularly as the company continues to expand into new markets. SodaStream presently sells its range of goods through more than 60,000 retail stores in 45 countries, including 30 countries that it has entered since the beginning of 2007. In 2012, the business added more than 10,000 new stores, of which more than 5,000 stores were added in the United States, for a total of approximately 15,000 stores domestically. Moreover, SODA ships its products directly in 21 countries and indirectly via local distributors in its remaining markets. The company’s solutions are sold under the SodaStream brand name in most countries. It utilizes the Soda-Club label or select nomenclatures in select other nations. While SODA’s distribution strategy is customized for each market, it generally employs a multi-channel shipping approach that is designed to raise awareness and establish positioning of its offerings, first in specialty retail and direct marketing channels, then in larger food, drug and mass retailers.

SodaStream faces limited competition from manufacturers of other home soda makers in numerous jurisdictions. Since the business is active in the carbonated soft drink and sparkling water markets, it also challenges large global beverage companies for the dollars spent by consumers on non-alcoholic drinks. The company also encounters competition with respect to some of its consumables, in particular in its CO2 refill business and flavors. In addition, third parties may manufacture and refill cylinders that can be used with its soda makers. Thus, SODA typically enters into agreements with distributors and retailers that prohibit third parties from refilling its empty cylinders. Notwithstanding such arrangements, a court ruling in Germany allows consumers, as well as retailers who are not party to written agreements with SodaStream, to refill cylinders with CO2 supplied by third parties. With respect to SodaStream’s flavors, it squares off against several businesses that produce soft drink syrups and fruit-flavored mixes to add to sparkling or still water.

Although manufacturers of consumer products may enter the home beverage carbonation system market as the industry grows, it could prove difficult for new entrants to provide a complete product system to consumers. Specifically, the reverse logistics needed for SodaStream customers to return empty CO2 cylinders and exchange them for filled CO2 cylinders at retail stores, currently comprised of a pool of several million cylinders globally, will be difficult and expensive for others to replicate.

Shares of SodaStream have been on a wild ride over the past couple of years. Indeed, the stock has traded between $28.00 and $78.00 a share. The volatility stems largely from takeover rumors that PepsiCo was courting the company back in June. Since then, however, such news has been refuted. Therefore, the current stock quotation appears based more on the fundamentals underlying the business’s potential. SodaStream’s ample cash hoard and lack of debt have it set to expand its footprint around the globe, especially within core growth areas such as India and China. Too, much of the capital may be utilized for further innovation and product development.

All told, subscribers interested in this beverage carbonation manufacturer are advised to consult Value Line’s quarterly reports for SodaStream International, as well as any supplemental reports and relevant articles as important news items arise.

At the time of this article’s writing, the author did not have positions in any of the companies mentioned.