Options Trade of the Week  Sodastream International Ltd (NASDAQ:SODA) Calls
Tuesday, September 16, 2014

**OPTIONS TRADE OF THE WEEK: Buy the SODA Jan 2015 35.000 call (SODA150117C00035000) at or under $1.80, good for the day. Place a protective stop limit at $0.75 and a pre-determined sell at $3.50.

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by Ian Harvey

September 16, 2014

Introduction

** SODASTREAM INTERNATIONAL LOOKS SET TO REBOUND!!! **

SodaStream International (NASDAQ: SODA), an Israel-based home beverage carbonation systems manufacturer, looks set to trade higher after having seen a lot of turbulence in the past few years.

The company began well, but the enthusiasm quickly dwindled and this summer the stock revisited its 2011 and 2012 lows. However, SODA now looks set to trade higher in the intermediate term, offering traders a chance to pick up a stock that has been beaten into the ground.

Technical Oulook

The July price low for SODA caused the RSI indicator to drop to all-time lows, marking the weekly chart with severe oversold readings.

The stock then bounced right into its diagonal resistance line from late 2013, and a break above it could accelerate upside momentum.

Looking at the daily chart below, the company’s second-quarter earnings announcement got the stock moving nicely off its July lows. Four trading days prior to the report, on July 24, shares surged more than 9%. The stock then rallied another 10% on July 30, following better-than-expected earnings.

However, movement was fairly limited due to the company’s lowered U.S. sales guidance, along with the fact that Keurig Green Mountain (NASDAQ: GMCR) and Coca-Cola (NYSE: KO) plan to roll out a cold Keurig device by next year that could take market share from SodaStream.

On August 20, SODA pierced its 50-day simple moving average for the first time since April and has since consolidated in a tight range. If the stock can break above its horizontal resistance line at $34.50, it should lead to a good breakout move.

The company is still expected to grow, and it trades at about 17 times this year’s expected earnings and about 15 times next year’s expected earnings. That isn’t dirt cheap against the broader market, but it is far from expensive — Coca-Cola and PepsiCo are both valued at more than 18 times next year’s expected earnings expectations.

Earnings

Sodastream International (NASDAQ:SODA) last released its earnings data on Wednesday, July 30th. The company reported $0.43 earnings per share for the quarter, beating the analysts’ consensus estimate of $0.31 by $0.12. The company had revenue of $141.20 million for the quarter, compared to the consensus estimate of $140.56 million.

During the same quarter last year, the company posted $0.74 earnings per share. Sodastream International’s revenue was up 6.5% compared to the same quarter last year. On average, analysts predict that Sodastream International will post $1.86 earnings per share for the current fiscal year.

A Changing Outlook By Investors

1. Healthier Options

SodaStream's "Free" is a zero-calorie seltzer beverage that it believes will resonate with health-conscious consumers. Free will appear on U.S. retail shelves in the latter half of 2014. Source: SodaStream.

America has a newfound appetite for healthier food and beverage options, and the latter is precisely where SodaStream plans to make waves. As evidence, consider that Americans are consuming fewer calories than we were four years ago, and fast-food outlets are feeling the effects of our shifting values. Meanwhile, the same developments are occurring in the beverage industry.

2. Plenty of Room for Opportunity

SodaStream is the largest participant in the U.S. home soda market; but only 1.1% of households owned a SodaStream machine as of last summer. That's almost a blip on the radar, which means there's plenty of untapped opportunity.

The entrance of Coca-Cola and Keurig Green Mountain with their co-created Keurig Cold machine will increase awareness around the do-it-yourself soda movement. It will lead to more shelf space for these products in stores, and will likely create a "buzz" among consumers that exceeds anything SodaStream could ever muster on its own. It will prompt consumers to debate the merits of the Keurig Cold's single-serve functionality against SodaStream's higher-volume containers. And the same goes for the carbonation process, the flavors, and the cost of regular use.

Because there are limitations of Coke's machines -- including a lack of flavor customization and a single-serve refill pod -- there's reason to believe SodaStream can entice customers who find its machines better suited to their household needs.

3. SodaStream Stock Look Cheap In Today’s Market

With its stock price cut in half during the past twelve months -- from $70 to roughly $35 per share -- SodaStream is looking cheap.

Analysts Opinions

Sodastream International has received an average rating of “Hold” from the twelve brokerages that are presently covering the stock. One investment analyst has rated the stock with a sell recommendation, nine have given a hold recommendation and two have given a buy recommendation to the company. The average 1-year price target among brokers that have issued a report on the stock in the last year is $42.75.

The company has been the subject of a number of research reports:-

• Analysts at Citigroup Inc. reiterated a “buy” rating on shares of Sodastream International in a research note on Thursday, July 31st. They now have a $41.00 price target on the stock, down previously from $47.00.

• Separately, analysts at JPMorgan Chase & Co. reiterated a “neutral” rating on shares of Sodastream International in a research note on Thursday, July 31st. They now have a $40.00 price target on the stock, down previously from $45.00.

• Finally, analysts at Roth Capital reiterated a “buy” rating on shares of Sodastream International in a research note on Thursday, July 31st. They now have a $48.00 price target on the stock, down previously from $55.00.

Conclusion

SodaStream is starting to stand on firmer footings as in the year ahead, the at-home soda maker could benefit from a shift toward healthier sparkling beverages, and the entrance of Coke in a currently niche DIY drink industry. Meanwhile, SodaStream's built a reliable business model overseas that's overshadowed by a stagnant American market. Positioning for position with this options trade should provide a nice profit.

Therefore, based on the facts above the following options trade is recommended…..


**OPTIONS TRADE OF THE WEEK: Buy the SODA Jan 2015 35.000 call (SODA150117C00035000) at or under $1.80, good for the day. Place a protective stop limit at $0.75 and a pre-determined sell at $3.50.


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