By Neal Rau
Carbonating water at home is growing fast, and shares of SodaStream International Ltd. (SODA) have rewarded investors. The company has partnerships with companies like Ocean Spray and Del Monte. The stock has returned 68% over the past two years, however shares are down 27% from the 52-week highs in June. Is the pullback a buying opportunity?
The cost of buying bottles of soda adds up over time, and for regular soda drinkers it wouldn't take long for their savings to offset the roughly $200 for a SodaStream machine. When you consider all the plastic bottles you would be saving, you can see how that would appeal to green customers.
Over the past decade, the obesity epidemic has brought soda under fire socially. Beverage giants PepsiCo, Inc. (PEP) and The Coca-Cola Company (KO) are seeing sales slip due to changing consumer preferences and increasing health consciousness.
Store bought soda contains high fructose corn syrup and preservatives, while SodaStream offers a Natural line of syrups, which come in a variety of flavors. There are also the Naturals Kids lines, which have added vitamins, or you can choose simple and pure sparkling water.
You would think if health concerns are steering customers away from soda that diet soda sales would be less affected, but the opposite is true. Diet Coke volumes were down 3% last year, Diet Dr. Pepper (DPS) was down 2% and Diet Pepsi was down over 6%.
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Shares of SODA fell sharply after sales of flavors declined slightly following strong pipeline and inventory reductions at major retailers. However, management said this was due to vendor wide reductions and not specific to SODA. The stock is getting close to a test of long-term support based on the real-time trading report published by Stock Traders Daily. Investors will have to wait until mid-February to find out if the flavor sales was just a one-time, non-SODA related issue or not.
The company has partnered with many big brands recently. SodaStream launched its co-branding partnership with Ocean Spray to include three flavor syrups including Cranberry, Cranberry Grape and Cranberry Raspberry. Since launching these flavors in the 4th quarter this year, the flavors are already available at Best Buy Co., Inc. (BBY) Bed Bath & Beyond Inc. (BBBY). SodaStream and Del Monte announced a deal to produce and distribute a portfolio of Del Monte branded syrups. These flavors will be part of a new fruit family, starting with Tropical, Caribbean and Orange flavor options.
After the post-earnings decline and lowered expectations, if the vendor wide reductions were not SODA related, as management suggested, there could be an upside surprise next quarter. However, investors need to be aware of price because that is what makes us money, and based on the Stock Traders Daily SODA real-time trading report, the stock is moving closer to long-term support, but isn't there yet. If SODA continues to move lower, and tests long-term support, we would be buyers near support. If support holds, we would expect a move higher and an eventual test of resistance, but the key for investors here is support. If the stock breaks support instead that is your red flag.