Trader favorite SodaStream (SODA), which manufactures home beverage carbonation systems, has faced some stiff headwinds lately that don't appear to be dissipating any time soon.
Even though the brand seems to be catching on and more companies are jumping on board to offer their flavors, analysts are concerned with the company's growth prospects. In late October, Stifel Nicolaus downgraded the stock to "sell" from "hold," while Deutsche Bank (DB) maintained its "hold" rating but lowered its price target to $58.
Most recently, on Dec. 6, Longbow Research downgraded SODA to "neutral" from "buy," largely based on concerns over the company's holiday sales.
In the research note, analyst Phil Terpolilli mentioned that SodaStream products seemed to be well received, given the shelf space and promotional support at retailers like Bed, Bath & Beyond (BBBY), Costco (COST) and Wal-Mart (WMT). But so far, holiday sales appear weak. While he noted that they could pick up, year-over-year growth is still likely to come in below the Street's expectations. Longer term, however, he said he sees improving gross margins for the company.
Other recent research reports sang a similar tune and have done little to help the stock's price stabilize. And from the look of the charts, SODA is likely to continue lower.
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Since its initial public offering in November 2010, volatile SODA has become a trader favorite while frustrating more fundamentally oriented longer-term investors. After peaking in the summer of 2011, gravity set in. What goes up (too steeply) must come down, and SODA fell hard, giving back almost all of the gains from the prior seven months.
After bottoming in late 2011, the stock settled into a technically constructive 12-month consolidation period, which ended with a marginally higher low in November 2012 and coincided with an important reaction low in the broader U.S. stock market.
From there, SODA went on a tear into its June 2013 top, which came close to the summer 2011 all-time highs. But once again, due to an unsustainably steep slope, the stock began to slide. Up until early October, that correction appeared orderly and constructive. That quickly changed when SODA snapped its November 2012 uptrend line.
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In the daily chart below, we can see that SODA recently rejected the retest of its 50-day and 200-day moving averages. And earlier this week, it neared its early November lows near $51.70.
SODA continues to look and feel heavy, and absent any imminent good news, look for it to break below the November lows and work itself toward the high $40s, its next support area from the first quarter of 2013.
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Recommended Trade Setup:
-- Short SODA on a daily close below $52.50
-- Set stop-loss at $54.50
-- Set initial price target at $48 for a potential 9% gain in 3-6 weeks