Pop Goes The Weasel: Sodastream Fizzling This Morning - Costco Wholesale (NASDAQ:COST)

Pop goes the weasel? That is what happened if you are a shareholder of SodaStream International Ltd.

SODA

this morning, as shares are plunging more than 30% this morning, despite blowing away earnings estimates. The Israeli-based company reported earnings of 29 Euro cents per share on $53.3 million Euros in revenue. Converted, the company reported earnings of 35 cents per share on $77.4 million in revenues. Wall Street had been expecting earnings of 22 Euro cents per share on $50.09 million Euros in revenues. "We are very pleased with our overall performance, particularly the marked improvement in our bottom line, which demonstrates the earnings power of our business model. These record results were fueled by strong consumer adoption, which is reflected in all-time high sales of our CO2 refills and flavor consumables," stated Daniel Birnbaum, Chief Executive Officer of SodaStream. The company had more cash and cash equivalents on its books as of the end of June then it did at the end of 2010. It had Euro 74.8 million, up from Euro 52.9 million, thanks in large part to a secondary offering back in April. So why the big plunge today? The company is a high flyer, and has a high multiple, indicating that the company is growing rapidly. As such, the company was expected to ratchet up full year guidance after the earnings blowout, but it did not. The company currently trades for 48 times 2011 earnings and 33 times 2012 earnings. This is from the press release: "The Company continues to expect full-year 2011 revenue to increase by approximately 30% as compared with 2010 revenue of Euro 160.7 million and full-year net income to increase by approximately 60% as compared with its net income of Euro 9.7 million reported in 2010." All the momentum players are exiting the stock at once, and they can not get out of the stock fast enough. SodaStream has been a favorite name of investors like Jim Cramer, and the train wreck being seen today is nothing more than momentum leaving the stock. When momentum traders leave a momentum trade, it gets ugly very fast, and can take weeks, if not months, for it to get back to the luster it once had. This is not to say that SodaStream will not go up tomorrow, but it does look like the fizz is being let out today in a major way.

ACTION ITEMS:

Bullish:

Traders who believe that SOdastream will come back, at least in the short term, might want to consider the following trades:

A 30% hairclip is a lot, even for momentum. Tomorrow may see some additional selling, but over the short term, it should recoup some of today's losses, although probably not all.

Bearish:

Traders who believe that Sodastream is done may consider alternate positions:

This name is mostly momentum traders, such as hedge funds. Once they all go running, the door is only so big and they are all trying to get out at once. Markets tend to overshoot on the way up and the way down. Shorting for a while could be profitable as all of the momentum players exit.

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