Why the same financial analysis ends with yes instead of no, a few years later
I am following the investment community by reading all the common sites - Seeking Alpha, Morningstar, Fast Graphs, etc..- and have the conviction there are gems left in the stock market and just a few people are acting on them. I keep also the view that there are business people totally unqualified for their position and pushed by market events to lead something beyond their understanding and comprehension. Those statements are coming from working in many start-ups which were acquired or imploded spectacularly and the investment community did not have a clue of real motives.
The financial statements released every quarter forces a short (maybe medium) strategy in the life of a public company. In my MBA years I was so amused by all the case studies providing hints of the health of the company based only on those numbers. It helps to know the industry, to know the players and the direction it goes but mostly to have the courage to invest in the "black sheeps" of the today currents of the markets, or also known as being a contrarian investor.
This post is one of the stories of a company I followed and in which I lost money for several reasons but mainly because I did not know how to apply my ideas at the time into practical approaches for the market swings.
I read about Sodastream (SODA) when the company had a share price of around $32, after a fallout from $50. The product - carbonated water made at home - sold through a device and CO2 capsules seemed so appealing and simple to me. In my childhood we used to use those glass bottles refilled with carbonated water and I observed their technical evolution, from bottles with a special cap you fill it many times at special kiosks, to aluminum bottles having a special head which employed a small capsule to make the carbonated water at home. The new twist of Sodastream product was they were selling a device and the consumer had to buy CO2 capsules only from them (the same concept used in razor and blades). The catch, for the market, was that the USA market wasn't that enthused to the idea because sugar soda was still king in sales and even canned soda was cheaper than Sodastream offering. The marketing strategy accentuated the health benefits consuming carbonated water with no sugar. That did not got much traction and then the company was also providing concentrated juices to be used with their soda station. Still, the convenience of the US market did not move the needle in sales.
One other controversial aspect for Sodastream, it was based in Israel and tried to use Palestinians for workforce. Locally and internationally that created another stir in the news. Also it aired a short video advertisement with actress Scarlett Johansson calling explicitly on Coke and Pepsi which was banned due to the ad power of the said companies.
For some reason, Pepsi at the time (2014), was interested to buy the company but cancelled the plans. As a result the share price plunged closed to 20$. The only growth was coming from Europe and not much from North America. Evaluation wise, the company was cheap around 20$ and I was doubling down from 32$.
The whole market at the time was tanking and the options for me where to stick with my decisions or take the losses. I waited around six months, there were stagnant news from the company and the growth was on the plateau. Any analysis had shown there was no upside, but the health choice drink reasons prevailed in any argument. The big carbonated drinks players (Coke and Pepsi) were not interested in Sodastream's segment because they identified the inconvenience of making soda and the replacement of the CO2 capsules for end user.
Fast forward in 2019 and Pepsi bought Sodastream for 140$/share. The economic argument did not change, the only change is the view of the company as being aligned with today's customers values - healthy choices for drinks, no plastic bottles released in environment, the program to refill CO2 capsules is a perpetual service. Pepsi has also the huge market where the new offering can be pushed and can spread a broader adoption for healthy conscious consumers. It helped for the image of Pepsi and also for the eco-friendly approach of delivering carbonated water.
Also, the company hired Israelis and Palestinians in their manufacturing plants, which resonates with the dual country solution in the region, on the political horizon.
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