Money Matters - Simplified

Should I Buy or Short SodaStream?

 I'm fascinated by SodaStream (Nasdaq: SODA)By this point next month, I will likely be either long or short the company behind the namesake home soda carbonator. I don't think there's a reasonable investment choice in the middle.

 

 I bashed the bubbly pop star after it raced to as high as $37.86 in its first four days of trading. Now that yesterday's 15% pop puts it back within striking distance of higher highs, I'm forced to revisit my bearish thesis.

See, I did what any good bear would do in knocking a stock. I went out and bought the darn product.

Making the most of the 20% off coupons from Bed Bath & Beyond (Nasdaq: BBBY) that regularly flow into my mailbox, I figured spending $80 on a $100 contraption would help me get to the bottom of the mania.

The product itself left me unimpressed. It's not the seamless, one-click operation a java junkie finds in Green Mountain Coffee Roasters(Nasdaq: GMCR) Keurig single-cup brewers. The flaws are several.

  • Since carbonation levels and syrup pours will vary to some degree, there's a lack of consistency. I know that every Coca-Cola (NYSE: KO) can I crack open will taste exactly the same. That doesn't necessarily apply here. I had to toss out one really bad batch of diet cream soda.
  • Speaking of diet sodas, the fat-free flavors -- by and large -- blow. The regular flavors hold up well. Some, like root beer and the Dr Pepper knockoff, are even pretty good, though by and large this product tastes inferior to the name brands. I've tested nearly 10 flavors -- and I'm not wowed.
  • The biggest secret of all is that this is actually more expensive than even brand soda. Between refillable carbonators and soda syrup, an 8-ounce SodaStream serving will set you back $0.25. That may not seem like much, but consider the 2-liter bottles you buy at stores. That's 64 ounces. Have you ever paid $2 for a 2-liter soda bottle? You can get store brands for a third of that price sometimes.

Naturally, this would make shorting SodaStream a no-brainer, but the one thing that I didn't count on was the excitement at Bed Bath & Beyond.

The retailer is pushing this big time as a holiday gift. The front window display was a stack of the new $149 and $179 upgraded models that they had just received. When I asked the manager about SodaStream, he was pumped and handed me over to an even more enthusiastic employee who walked me through the differences between the three models and provided his own tips for making primo pop.

It finally dawned on me why Bed Bath & Beyond is so eager to move these puppies. If you buy a system, you'll find yourself right back at the store to buy the $5 syrups or filling the line in customer service to exchange your refillable CO2 cartridge. I imagine the same scene playing out at Williams-Sonoma (NYSE: WSM), as these chains that typically want regular repeat business now have the perfect tool to make this happen.

The product may not be great or cheaper than the real thing, but SodaStream does have its merits. For starters, the home-based simplicity means that the nondiet flavors only pack a third of the calories of traditional nondiet soft drinks. The environmental message will also resonate with some buyers.

SodaStream reports results next week. I'll be listening. Sleepy growth in recent years has accelerated in 2010, and the heady stateside push offers a more soda-friendly market than its European stronghold.

I wish its product was better. I wish its stock was cheaper. I have a decision to make in the coming weeks, and next week's report will hopefully push me in one direction.  

© 2010 UCLICK L.L.C.