Citron Research on Green Mountain Coffee Roasters Inc. (NYSE:GMCR), Sodastream International Ltd (NASDAQ:SODA) and The Coca-Cola Company (NYSE:KO).

After a year which promised hyper-growth, but delivered somewhat less than spectacular earnings, Sodastream International Ltd (NASDAQ:SODA) ended trading yesterday at a 52 week low — but now everything has changed.

The news of the day in today’s market is the 10% investment of Coca Cola in Green Mountain Coffee, with the goal of establishing a definitive market for single serve cold beverages.  After hours, the market reacted as though it was SODA’s “Uh-Oh” moment … But really?

SodaStream SODA
Source: SodaStream

Citron discusses the principle that every short seller needs to understand and respect:

The thin line between competition and proof of concept

 

While Citron does not hold itself out to be a beverage analyst, we think it fair to state that Coca Cola understands this competitive space better than anyone. So what does this mean for SodaStream?

The Perfect Storm

Short-sellers ought to look at yesterday’s news as the perfect storm of bad news.  The stock has closed at a 52 week low

Short interest is near its 52 week high. As of Jan 15, 2014, it was  8.7 mm sharesor 42% of the outstanding — that’s 54% of the float.

The story has completely changed — and it will take years to disprove the thesis

It is an understatement to say that Coke vs Pepsi is a pre-eminent corporate rivalry. Every credible news source would call this the greatest corporate rivalry in the history of business.

 

 http://money.cnn.com/gallery/news/companies/2013/03/21/greatest-business-rivalries.fortune/2.html  http://www.dailyfinance.com/photos/50-greatest-business-rivalries-of-all-time/

 

Every business school in the world uses these two companies as exhibits #1 and #2 when discussing competition.

 

This is no 3-rounder for flyweights, either; it’s a 15 round heavyweight bout.

 

Coke has Minute Maid, Pepsi has Tropicana. Coke has Powerade; Pepsi has Gatorade. Coke has Sprite; Pepsi has 7-UP

Coke has Dasani and SmartWater; Pepsi has Aquafina

Coke has Odwalla; Pepsi has Naked Juice … it goes on and on.

SODA-final

SODA Final

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