Shares of Sodastream International Ltd (NASDAQ:SODA), the maker of home beverage carbonation systems, rose for a third day Monday as momentum after last week’s earnings report continued.
SODA stock underwent a major selloff in 2014, and after basing for a few months, this most recent rally looks to have confirmed the lows. Now, active investors can consider playing the long side in SODA stock.
Sodastream’s fiscal fourth-quarter earnings reported May 6 came to 40 cents per share, which clocked estimates of 3 cents per share. However, revenues of $91.3 million missed analyst expectations for $100 million.
In 2014, Sodastream struggled with declining sales and this looks to have continued in the latest quarter. There might be a bigger structural shift at work here as younger generations such as millennials are more health-conscious and thus less drawn to soda-like drinks. While this is an issue for Sodastream, the company does seem well positioned to push into healthier drink categories that could spark a revival in its sales.
Following the earnings announcement, Roth Capital upgraded the stock from “neutral” to “buy,” joining others such as Citigroup and Susquehanna that have a positive outlook on SODA stock.
SODA Stock Charts
Now that Sodastream’s news flow seemingly has ebbed, I glance toward the charts and see a confirmation of this trend.
The multiyear weekly chart of SODA stock shows that after breaking below the key multiyear black support line last October around the $29 area, the decline in shares began to slow. Note that the Relative Strength Index (RSI) on the weekly chart bottomed last October and has been making higher lows since then, while price continued to slide into March of this year.
Over the past few months, SODA has traded in a tight range, which led to the Bollinger bands coming tightly together, thus increasing the chances that a better directional move is nearing.
From this perspective, Sodastream could see a multimonth mean-reversion move back into the high $20s.
Over on the daily chart, note that the price action in March marginally undercut the January lows, but this came on waning downside momentum. Last week’s initial post-earnings reaction lower then formed a higher low versus the March lows.
On May 7, SODA stock surged nearly 15% on good volume, which led to another 8% in returns over the past two trading days. This move has confirmed the March lows and pushed the stock back above the black horizontal line of resistance.
In the near term, Sodastream might need to consolidate, but the bullish post-earnings reaction in shares over the past few days looks to have firmly set a more bullish tone that you can expect will stick for months.
Active investors should look to buy SODA stock on any pullbacks toward the $20-$21 area for a move into the mid-$20s as a first upside target.
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Download Serge’s trading plan in the Essence of Swing Trading e-book here. As of this writing, he did not hold a position in any of the aforementioned securities.
