Is SodaStream (SODA) A Healthy Investment?

Carbonating water at home is growing fast, and shares of SodaStream International Ltd. (NASDAQ:SODA) have rewarded investors. Many consumers are looking for healthier options to regular soda or diet soda.  SodamStream has been able to tap that market and continues to rapidly grow its brand. The stock has returned 24% YTD, however shares are down sharply after the Q3 earnings report. Is the pullback a buying opportunity?

There are many advantages to making your own soda at home.  You can choose what type of ingredients to use, and spend a lot less than what you pay in the store.  Your home made soda will also reduce the plastic bottles that are bad for the environment.

Over the past decade, the obesity epidemic has brought soda under fire socially. Beverage giants PepsiCo, Inc. (NYSE:PEP) and The Coca-Cola Company (NYSE: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 has 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 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 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 how if the flavor sales was just a one-time, non-SODA related issues 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. (NYSE:BBY) Bed Bath & Beyond Inc. (NASDAQ: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.

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