Nine times out of ten when a stock rallies 33% in a month, the rally tends to be a one hit wonder, setting up to fade just as quickly as it soared. In the case of Sodastream International Ltd (NASDAQ:SODA) though, today's 6% rally puts the finishing touches on a breakout effort that's been brewing for a month, and setting up since September of last year.
This isn't the first time I've entered the SODA rodeo. My last look was back on September 11th, when I made the point that the company was doing too well for the shorts to hold it down - or beat it down further. The short interest at the time was at 60%, and though the pessimists were out in full force, nothing could change the fact that Sodastream International was on pace to grow revenue by 40% in 2012, and was plausibly forecasted to grow the top line by 19% next year. Throw in the fact that SODA has topped earnings estimates in six of the past eight quarters (not to mention that's it's actually profitable), a breakout move was only a matter of time.
Now may well be that time.
Though of Sodastream International Ltd shares may be overbought in the very near term, the move from a low of $33.15 to the current price of $43.23 has yanked the chart out of a rut. The nearby daily chart makes that pretty clear, but to really appreciate how big of a deal this is for SODA, one has to look at this weekly chart. Not only has the stock wiggled its way out of a converging wedge pattern, but it's knocked over a horizontal resistance line at $41.60 and is making a beeline for the next one - the last one - at $44.30.
That's all encouraging stuff for Sodastream shareholders, but what should be most exciting is how it all went down. The stock's been stuck in a rut, consolidating for well over a year. But, a head of steam has been building the whole time. It looks like it's on the verge of being released now, if it hasn't been already.
So what gives? As I noted in September, the market's not going to keep a growing, profitable company down forever. The catalyst, though, is the holiday season against a backdrop of the idea finally getting traction in the United States. It may have been a novelty to U.S. consumers in 2011, but now, Sodasteram is a viable option to cost-conscious and health-conscious consumers. And, the machines are apt to be under more Christmas trees this year than first imagined. While a round of solid publicity late last week and today may have spurred the big jump today, it's all actually part of a critical mass that's been building in the company's favor for weeks. And, with a forward-looking P/E of 16.4, it's not like investors have to pay a fortune to get in here.
Bottom line? We may see a small pullback from SODA after today's pop, but the bulls have spoken. Any dip is a buying opportunity.