This Stock Could Pop
Sodastream International Ltd (NASDAQ:SODA) is disrupting the soft drinks market via its innovative home beverage carbonation systems, the company has delivered better than expected earnings per share in each of the last four quarters, and it will be reporting earnings again on January 20. In spite of its financial performance over the last quarters, and with the stock trading near all time highs, short sellers have not covered their positions, as the stock has a huge short interest ratio in the area of 45% of the float.
The company operates under the razor and blade model, so past success is an optimistic sign about the future. As the company sells more “razors” –soda making machines – that anticipates higher sells of “blades” –syrups and CO2 – which is where SodaStream makes most of its profitability.
The bears in SodaStream have been quite stubborn, maintaining their short position in spite of the company´s better than expected performance and the growing popularity of its products. This leaves a nice overhang of investors which will need to buy the stock to cover their positions if the company continues delivering better than expected earnings, so this soda maker looks ready to pop.
Open Table for Open Minded Investors
OpenTable Inc (NASDAQ:OPEN) is the leading online restaurant reservation platform, an industry which has proven to be beneficial to both restaurants and customers, and the company has been steadily growing both its network of restaurants and popularity among customers over the last years. The business is doing well, as OpenTable recently reported better than expected revenue and earnings per share for the last quarter.
But there is still a big dose of skepticism regarding the company considering that short interest is above 30% of the float. The bears may be focusing their attention on risks like new technologies and increased competition, but OpenTable seems to be successfully adapting to the mobile boom, and it has the first mover advantage in a very dynamic business.
Competition is always a threat in such an innovative area, especially from bigger players with more resources. But OpenTable is benefitting from the network effect: the service increases in value when it gains more users, and this attracts even more users, creating this way a virtuous cycle of growth and added value. Having a head start is a very valuable asset in this business; in fact, a bigger player may be more interested in purchasing OpenTable than trying to displace it, which would certainly ruin the meal for the bears.
Bottom Line
What has more upside potential than an innovative growth company? An innovative growth company with big short interest, and these tree stocks fit quite well into that description
The article Three Disruptive Companies With Heavy Short Interest originally appeared on Fool.com and is written by Andrés Cardenal.
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