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ChartWatch: Time to Buy SODA

SodaStream (NASDAQ: SODA) may have the best chart I’ve seen in a while.

The shares shattered a 17-month resistance level at the $45 level (blue line below) this month. What’s even more impressive was the volume during the breakout.

Volume measures investor interest. A stock moving through a resistance zone on better-than-average volume is a sign that buyers are very interested in owning the shares. The high volume also indicates that this buyer motivation is likely to persist, causing the shares to rise for an extended period.
 This chart shows the price of SODA shares along with a previous resistance level to monitor.

SodaStream is a misunderstood company. That’s why it fell by so much in 2011.

Investors were concerned that household penetration was becoming saturated. So growth would slow. Also, 80% of the company’s business is overseas and a majority of those sales are European based. So the economic slowdown that spread across Europe last year didn’t help investors overcome their fear of buying SODA.

However, this company offers more than just a product to European households. Analysts often miss the benefit of SodaStream moving into restaurants.

SodaStream offers restaurants a device that can turn tap water into sparkling water. And water with gas is very popular in Europe. Moreover, SodaStream’s device also purifies the water before adding carbon dioxide. So it saves restaurants money, storage and makes water safer to drink.

A few weeks ago, I was skeptical about this company. And the product remains of no use to me. However, after looking into their client relationships – which have greatly expanded – and re-reviewing the product, I’m a believer.

This is a jumpy stock. And there will certainly be bumps in the price along the way. But SODA looks ready to rally higher this year, possibly to as high as $65.

Equities mentioned in this article: SODA

Positions held in companies mentioned above:


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