Jones Soda Gets Flat

Zacks senior consumer products analyst Steven Ralston, CFA continues to feel that his Hold rating on soft drinks company Jones Soda (JSDA - Snapshot Report) is justified.  The following excerpts explain his position:

"Management has been successfully implementing a growth strategy based on introducing innovative new products, employing unique marketing programs and utilizing multiple channels of distribution. The company is in the early stages of development as a participant in the carbonated soft drink (CSD) industry.

"The last two quarterly earnings reports were negative surprises, and management has pared 2007 revenue guidance from the initial estimation of 50% down to 20%. However, the stock's price has discounted the majority of the negative developments. The rating is a Hold.

"Jones Soda is currently selling at 315 times trailing 12 month EPS, reflecting the company's recent negative earnings surprises. Jones Soda has a higher-than-average revenue growth profile and long-term potential as a producer and marketer of new-age beverages. The franchise would have particular value to a major CSD company.

"However, the recent negative earnings surprises, along with delay in the launch of CSD and slower-than planned concentrate sales, are concerning. In addition, the company has not achieved the planned growth in all commodity volume (ACV) in 2007. As a result, management has lowered its outlook for sales growth to 20%, down from the initial estimate in the 50% range.

"Since the company is in its early stage of growth, earnings and cash flow are volatile. The stock is better valued using P/S (price-to-sales). Jones Soda's stock has traded in a wide P/S multiple range of 3.5 to 20.6 over the last few years. The $6.85 target price is four times the estimated 2007 sales."

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