Why SodaStream stock is bubbling up

PepsiCo denied it might buy the make-your-own-soda company, but someone else could be a likely acquirer.

Shares of SodaStream (SODA +0.79%) surged nearly 3% higher Thursday even though the initial impetus for the jump proved to be wrong. A news report said the Israeli company that sells make-your-own soda kits was set to be taken over by PepsiCo (PEP +0.26%). But PepsiCo was quick to deny any such move.

Still, SodaStream kept its fizz because investors reckoned that if PepsiCo didn't buy SodaStream, someone else would. In fact, analysts at Barclay's argued that the shares could leap 44% as SodaStream continues to grow in popularity in the U.S. The company's recent quarterly results are cause for optimism.

Net income surged 19.5% to $12.1 million, or 57 cents per share. Revenue jumped 33.9% to $117.6 million, fueled by double-digit gains in sales for both Starter Kits and consumables, such as soda flavorings. Sales in the Americas, SodaStream's largest market, rose almost 90%. And the company boosted its earnings guidance.

The results beat Wall Street’s expectations, but some investors remain concerned that SodaStream's growth prospects may slow. The stock is also a favorite of short-sellers, who profit when shares of companies they see as overvalued decline. Plus, costs are rising, and gross margins are declining.  

Sales and marketing expenses in the first quarter rose to $38.9 million, or 33% of revenue, from $27.3 million, or 31% of revenue, a year earlier as SodaStream spent more on advertising. Demand outside the U.S. moderated as customers worked down their excess inventories.  

On the plus side, SodaStream has done an effective job at leveraging its product with existing brands. Consumers can carbonate Kool-Aid, CountryTime Lemonade and Crystal Light flavors. There's obvious potential for more growth here.

Unfortunately for investors, the shares are pricey, trading at a price-to-earnings ratio of 31.84, near a five-year high. But some analysts, such as those at Barclay’s, think the stock has more room to run. They have a 52-week price target on it of $100, about 40% higher than where it currently trades. Most analysts, though, aren't as bullish. The average 52-week target is $69, less than where it trades now.

Investors who want to bet on a trendy drinkmaker should consider K-Cup producer Green Mountain Coffee (GMCR +0.12%). Not only is its 28.78 multiple a bit cheaper than SodaStream's, but Wall Street analysts see the stock's potential upside topping 8%.

 By Jonathan Berr Jonathan Berr does not own shares of the listed stocks