SodaStream pops on rumored stake sale

The stock rises 8% on unconfirmed reports of a deal with a large beverage company. Shares have been extremely volatile for years.

By InvestorPlace Apr 16, 2014 1:28PM

Bottles of SodaStream flavors (© Frances Roberts/Alamy)By Dan Burrows


SodaStream (SODA) stock was jumping Wednesday after a media report said the company is looking to sell a large stake to a major beverage firm.


This is just the sort of boost SodaStream needed after a prolonged period of weakness. Prior to Wednesday's report, shares were off 16 percent year-to-date and 55 percent off the 52-week high hit last summer.


Investors should know that, based on the sketchiness of the media report, it's unclear how long the rally in the stock can last -- especially since much of the upside appears to be driven by a short squeeze.


An Israeli financial newspaper said SodaStream is in negotiations to sell a 10 percent to 16 percent stake at $54 a share -- a 33 percent premium to Tuesday's closing stock price, Bloomberg reported. That would value the stock at $1.1 billion versus its current market cap of $787 million.


If that's not hard enough to swallow, the report in Calcalist said possible parties involved in the transaction were a who's who of Big Beverage: PepsiCo (PEP), Dr Pepper Snapple Group (DPS) and Starbucks (SBUX).


Why National Beverage Corp. (FIZZ) and Cott (COT) were left out of this deal news shotgun blast is a matter of speculation.


The deal comes a couple months after Coca-Cola (KO) and Green Mountain Coffee Roasters (GMCR) announced a partnership of their own in which Coca-Cola took a 10 percent stake in Green Mountain and will dish out single-serve soda via a "cold" Keurig.


Calcalist didn't say how it got the deal information, Bloomberg reported, but that doesn't mean it's not true.


And ultimately, that's immaterial for retail investors anyway.


True or not, SODA isn't worth the trouble for most investors. It will never let you get a good night sleep just based on volatility alone.


Have look at the fortunes made and lost since SODA stock went public in 2010:

sodastream-soda-stock-chart


SODA isn't anything you want to count on as a buy-and-hold investment.


As a quick trade, however? Hey, you might get lucky. Nearly 40 percent of SodaStream's float was sold short as of the most recent data, according to data from S&P Capital IQ. If the deal turns out to be true, then all that short interest could fuel upside in the stock for at least a couple of sessions (including Wednesday's).


Based on average volume, which will rise in a squeeze, it would take about six days for the shorts to get out.


Bottom line

SODA stock might -- might -- be a trade on this unsourced report, but it's sure not an investment.


More from InvestorPlace

As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.

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