Jones Soda Co's Growth Slows
Jones Soda Company’s (JSDA - Snapshot Report) management has been successfully implementing a growth strategy by introducing innovative new products, employing unique marketing programs, and utilizing multiple channels of distribution. The last five quarterly earnings reports produced negative surprises, however. The stock has discounted the majority of the negative developments. The rating is a Hold.
The company is in the early stages of development as a participant in the carbonated soft drink (CSD) industry. 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. In addition, the company should benefit from additional retail accounts and improved distribution capabilities.
However, negative earnings surprises and the company’s slow transition in becoming a mainstream beverage company are concerning. The management plans to increase the penetration level to 50 percent over time, but the company did not achieve the planned growth in all commodity volume to 30 percent in 2007. As a result, outlook for sales growth was lowered.
Jones Soda is selling at negative multiple to trailing 12 month EPS, reflecting its negative earnings surprises. Since the company is in its early stage of growth, earnings 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 1.4 to 20.6 over the last few years. The $3.50 target price is 1.5 times trailing 12-month sales.