SodaStream International (NASDAQ:SODA) seems to be an "it" stock on the Street right now. Even those who are only casual investors seem to have heard of this one. Considering that this company has only been traded since late 2010, it is tempting to pass this one up and not give a recommendation at all. However, it is always good to keep an eye out for opportunity, and it appears that SodaStream provides that.
What Does SodaStream Make?
It is always a good idea to have at least some idea of what a potential investment makes or provides. SodaStream International is engaged in the creation of a home based soda making machine. This machine and the accessories that go with it make it possible for anyone to make enjoyable soft drinks from home. There are a variety of flavors to match many of the popular soda brands that are available in general. Consumers like the fact that they are able to save money in comparison to purchasing sodas in the traditional 12 can packages.
Why The Stock Can Turn A Quick Profit
Those who are looking to turn a quick profit on a stock might consider SODA. This issue is just such a hot one to have at the moment. Playing simply on momentum is not a strategy that I would typically recommend for any reason, but this stock may have the fundamentals to back it up.
SodaStream has been smashing its earnings for many quarters now. In the last 4 quarters, the earnings surprise has been at least 30% for each quarter. That is indicative of a stock that is moving fast and growing very rapidly. This is probably why the analysts have a target of 33% annual growth rate on earnings.
As anyone can see from the chart, this stock has taken its shots. It would appear as though it got too far extended from its correct value. After all, the earnings per share that are expected for SODA are $1.46 per share. Multiplying that by the expected growth rate puts the fair value at about $48 a share. It therefore makes plenty of sense that SODA got smacked down when it hit $70+ per share. However, it is now traded at just over $35 a share, and that just seems like the right time to make a move on this stock.
What Move You Should Make
Earnings growth rate expectations of above 30% are always a little suspect. Stocks with those kind of expectations really can reach that potential on occasion, but there are a lot of things that can threaten these huge growth rates. As such, it is usually best to play it conservatively on this fast growing stocks. I would therefore recommend a buy at these levels ($35.13 at the end of trading on 12/7/2011) and a sell at about $42 a share. This is a quick and easy 20% pickup while still playing SodaStream conservatively.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.