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SodaStream Earnings Pop, But Sell Before the Stock Goes Flat

SodaStream (SODA) is one of the few big-time growth stories on Wall Street across the past few years, and shares are popping 15% today on another strong earnings report.

However, there’s serious risk that SodaStream is just a fad — at least for investors — and that the ceiling for growth is approaching soon.

So consider selling SODA stock and taking profits while you can.

First, the SodaStream earnings details: In its fiscal second quarter, revenue was up 28.5% year-over-year and diluted earnings were up 33%. That continues a strong record of growth at SODA, where revenue tripled from fiscal 2009 to fiscal 2012.

There are a lot of reasons for the SodaStream earnings momentum during the past few years — its kitchen gadgets provide a healthier alternative to conventional carbonated beverages like the namesakes of Coca-Cola (KO) and PepsiCo (PEP), it’s more cost-effective to make your own bubbly drinks, and of course foodies love the versatility of the kitchen gadget.

But this has fad written all over it, and if it’s not a fad, you can bet that the heavyweights on the consumer business will step up and eat into this market share.

Take the Keurig machine from Green Mountain Coffee Roasters (GMCR), which shook up home-brewed coffee market with its single-serve method. However, eventually Starbucks (SBUX) moved into the market with its Verismo machine, and many consumers who purchased a Keurig had no reason to upgrade or buy another …  so sales and profits lost some of their momentum, and so did GMCR stock.

How bad was it? Well, from summer 2011 to summer 2012, GMCR stock went from over $100 a share to under $20 a share. Ouch!

Now, I’m not saying SodaStream earnings indicate that the momentum is slowing down. In fact, Wall Street’s response seems to indicate that SodaStream’s results continue to exceed expectations and investors aren’t seeing signs of distress.

But the one big thing that SODA and GMCR stock had in common was the preponderance of short sellers waiting in the wings. As a percentage of the float, short sellers occupy more than 46% of SodaStream stock, according to data from July 15.

So today’s pop might not be optimism from buyers as much as capitulation from some of the shorts.

That kind of volatility is nice on the way up as long as SodaStream earnings keep hitting the mark … but once they fall flat, the weight of the short sellers will force a painful experience for SODA shareholders.

If you are sitting on big profits after SodaStream earnings, the prudent thing would be to sell now.

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Jeff Reeves is the editor of InvestorPlace.com and the author of The Frugal Investor’s Guide to Finding Great Stocks. Write him at editor@investorplace.com or follow him on Twitter via @JeffReevesIP. As of this writing, he held a long position in Apple but no other stocks named here.

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