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Anatomy of Success: SodaStream (SODA)

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A company’s Zacks Rank is a great indication of how well it’s expected to perform over the next one to three months. Here at Zacks, we discuss how this ranking tool helps identify the best of the best, as only 5% of the Zacks Rank universe receives the exclusive rating of a #1 (Strong Buy).

Not only does this ranking help identify the most elite stocks, but it also enables you to stay in a particular company while it continues to see price appreciation beyond the three-month horizon.

Below, you’ll find an example that perfectly illustrates how to trade a Zacks Rank #1 stock, and how to ride the wave of earnings estimates revisions for market-beating gains.

SodaStream International (SODA - Free Report)                    

SodaStream makes and manufactures home beverage carbonation systems that let consumers easily transform ordinary tap water instantly into carbonated soft drinks and sparkling water. Its products include soda makers and exchangeable carbon-dioxide (CO2) cylinders, as well as consumables, consisting of CO2 refills, reusable carbonation bottles and flavors to add to the carbonated water.

Heading into the company’s second-quarter fiscal 2017 earnings report, SODA was a Zacks Rank #3 (Hold). SodaStream surged past top line estimates, with revenues increasing 10%. Diluted EPS rose 74% to 64 cents a share, also beating the Zacks Consensus Estimate. Machine unit sales grew 35% year-over-year, while has refill units were up 10% to an all-time record of 8.3 million. And, revenues from the company’s sparkling water maker starter kits increased 20.1% compared to the prior year. As a result, the stock was added to the #1 (Strong Buy) list on August 11. Shares of SODA closed at $58.88 on this day.

SODA hit Strong Buy status again on November 10 after it reported impressive third quarter results. Both earnings and revenues surpassed our consensus estimate, and operating income increased 24%. SodaStream has been implementing product, marketing, and distribution strategies aimed at building a global sparkling water franchise, and Q3 continued to gain traction with these efforts. The company also raised its guidance for the fiscal year; revenues are expected to grow 13% and EPS is now expected to gain 40% for the year. Four months after becoming a #1 pick, the company’s stock price increased 6.3% to $62.57 per share.

The sparkling water company remained a #1 (Strong Buy) until the beginning of January but slipped to a #3 (Hold) on January 5. However, SODA was recently made a Strong Buy stock on March 16, and shares closed at $91.46 per share that day. This reflects a roughly 55% gain in the last nine months or so.

Right now, SODA is a Zacks Rank #2 (Buy), and is trading around $93.23 per share.

This table shows the price performance of SODA (in red), as well as the 12-month forward looking EPS estimate (in green) from the time the stock first earned a Zacks Rank #1 (Strong Buy). During this stretch, SODA never moved lower than a Zacks Rank #3 (Hold).

By utilizing the Zacks Rank, investors are able to easily identify elite stocks that are best positioned to beat the market on a consistent basis, and how to hold those top stocks as they continue to grow.

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