Why SodaStream International Inc. Rose 51% in May

By Markets Fool.com

Image source: SodaStream.

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What: Shares of SodaStream International rose a heart-stopping 51.1% in May 2016, according to data from S&P Global Market Intelligence. At the core of the soda-machine maker's surge, you'll find a fantastic first-quarter report.

So what: The stock was already off to a nice start in May, rising a market-beating 7% before the earnings report. Then SodaStream more than doubled Wall Street's earnings targets alongside revenue 13% above expectations. Shares soared 25% higher over the next two days.

Another 10% surge followed at the very end of the month, when the company announced a system to make beer at home. It's not a full-blown brewery still, but more like a beer-flavored expansion of the traditional SodaStream drink-making tool.

SODA data by YCharts

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Now what: Do keep in mind that SodaStream came into May on a sour note. Share prices had been sliding inexorably lower since the summer of 2013, despite a steady drumbeat of positive earnings surprises.

The first-quarter report may have crushed analyst targets, but sales still declined 3.7% year over year while earnings slid 28% lower. It was more of a stabilization event than a surge into clear blue skies.

It is probably too early to declare a return to full health here. Investor enthusiasm notwithstanding, the company needs to show that its beer-making system is a good idea. In fact, the company must still prove beyond a reasonable doubt that the whole carbonated-drinks kit hasn't gone stale again. You do remember those machines being everywhere in the 1980s, right -- only to disappear for the next three decades?

I still don't see how this one-note business can stay relevant in the long run. In other words, the May surge was a rare break from that long-term decline, and I expect plenty more red ink in this company's future.

The article Why SodaStream International Inc. Rose 51% in May originally appeared on Fool.com.

Anders Bylund has no position in any stocks mentioned. The Motley Fool owns shares of SodaStream. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.