Jones Soda – Cramer and the Making of the Moment’s Hot Stock

April 16, 2007 at 3:47 pm  ·  Category: Stocks

One of today’s best performers was a stock by the name of Jones Soda (NSDQ: JSDA) – up $3.32 or 11.76% to $31.54 on huge volume.  It’s just the latest of many off the chart days for Jones Soda recently.  Trading around $10 towards the end of 2006 Jones is up more than 200% in the last 3 months!  It was the 6th best performer in the Russell 2000 for the 1st quarter of 2007.

Why? 

The story begins on Thursday afternoon December 21, 2006 on Jim Cramer’s famous “Mad Money” television program on CNBC.  Cramer headlined that day’s show by saying that Jones Soda was the next Hansen Natural (HANS), another beverage company, maker of the Monster Energy Drink, which had a phenomenal run in 2005 and 2006 – starting 2005 around $5 and breaking $50 in the middle of 2006 before crashing back down to earth. 

Predictably, the Cramer-icans bid up the stock the very next day sending it to $12.11 from $10.65 (it’s close on Thursday). 

Jones trended up after that finding resistance at $15 in early February and then falling back down into the low teens. 

The next event was the announcement by the company after the close on Thursday March 8, 2007, along with their 4th quarter and full year earnings, that they had signed some new deals to distribute their sodas with some big retail players like Walmart and Safeway.  The stock exploded the following day, up $3.18 (22.8%) to $17.13. 

The stock continued to trend up after the announcement closing at $18.85 on Friday March 16, 2007. 

Enter the great leader of our stock nation, once again.  In his show on that day (Friday March 16, 2007) Cramer interviewed Jones Soda CEO Peter van Stolck, gave the stock a ringing endorsement and said it wasn’t done going up.  Predictably, the Cramericans loaded up as soon as the market opened the following Monday, pushing the stock up to $20.02.

The stock traded around $20 for the rest of that week (the second to last of the 1st quarter).  It went up at the start of the next week but then started to come back down to earth. 

On Friday March 30, 2007, Scott Patterson had a little snippet on Jones Soda at the bottom of Justin Lahart’s “Ahead of the Tape” column, which runs on the front page of The Wall Street Journal’s “Money & Investing” section everyday, entitled: “Jones Soda Is Buzz Worthy but is its Price Justified?” (subscription required).  He was inclined to think no given it’s trailing P/E around 120.  The stock gave up 97 cents to close at $20.22.

It was right around this time that it seemed like the story of Jones Soda might be done, at least for a bit.  Not so fast.

In his show after the close on Friday March 30, 2007, Cramer once again pounded the table for Jones Soda saying that he still saw upside even though it had doubled since he first mentioned it back in December.  Of course, the stock took off on the open on Monday April 2, adding more than $2 over the course of the day.  On Wednesday April 4 (my 30th birthday!!!) Jones reached as high as $26.17 before heading back down and closing last Wednesday April 11 at $23. 

On Thursday, Investor’s Business Daily ran a bullish piece on Jones saying that it was about to go from being a little guy to playing with the big boys:

It took pride in being ‘the little guy’, but now Jones Soda aims to go up against the big soft drink guys. 

Jones-branded carbonated drinks are now being placed on stores shelves of 25 major retail chains, including Wal-Mart, Safeway, Kroger, Kmart, Costco in Southern California and Albertsons’ Intermountain, Florida and Denver divisions.

It’s a major shift meant to put the $40 million drink firm into a much larger market.  From the $500 million premium beverage category, it’ll now play in the $66 billion soft drink market.

‘Simply by placing the product where more people shop, it will dramatically expand the distribution and sales potential,’ said James Maher, analyst with ThinkEquity Partners.

The stock took off the next day, up $2.71 to $25.71. 

The following morning at 9:35 am EST, Jim Cramer wrote an article for his RealMoney subscribers saying that “Jones Soda Still Has Fizz”: “Jones has, like Hansen (HANS), gone beyond fad, but so few want to jump off here.  Don’t make the mistake that so often is made with many stocks that are in breakout status: The big move is still happening” – the article was made avaiable to readers of TheStreet.com after the close that afternoon.  The stock was up another $2.50 on Friday and more than $3 today to get us to today’s $31.54 close.

*****

Today’s closing price gives Jones an enterprise value of around $800 million.  Jones made about $4.6 million in 2006 pushing its trailing P/E up to 174 – almost 50% higher than when Scott Patterson wondered two weeks ago if it was already too rich.  Even a forward P/E of 30 on a 200% rise in earnings (to $15 million) for 2007 gets us only about halfway to the current price.

In his latest from last Friday Cramer said that the “stock will remain in the news positively until it becomes a billion dollar company too big to acquire.  That’s not for another $350 million.  On a $650 billion basis, that’s not bad”.  As of today, that leaves another $200 billion up to $38 a share. 

Needless to say, this stock is a sucker’s game and it can only go so much farther until the bottom falls out.  In fact, it will likely take only one word from Jim Cramer: SELL!!!

UPDATE (Mon 4/23, 12:05pm PST):

Jones Soda is down about 15% from when we wrote the above post after last Monday’s close – from $31.54 to $26.79 at the moment.  Let’s get the story up to date.

Last Tuesday, April 17, Think Equity Partners analyst James Maher downgraded Jones from “Buy” to “Sell”, putting a $26 target on the stock:

We are not aware of any incremental news, from management or otherwise, that would justify the greater than one-third increase in the share price just since April 11, and believe the shares may simply have gotten ahead of themselves on extremely high trading volume.

Of course, alot happened to drive the stock since April 11, though nothing of any fundamental value to the company.  Like I wrote above, Investor’s Business Daily published a bullish article on Jones on Thursday April 12 – which Maher knows since he was quoted in it!!!! – and then Cramer wrote his piece “Jones Soda Still Has Fizz” (see above) in which he said “the big move is still happening”. 

Anyways, the stock was down more than $4 on Maher’s downgrade to close last Tuesday at $27.50.

That very evening in the “Lighting Round” on Cramer’s “Mad Money” a worried Cramerican asked Cramer what he thought of Jones after its tough day:

Down 4, do we start buying it again?  Yeah, I would buy Jones Soda down here.

Interestingly enough, this wasn’t enough to prevent the stock from falling again on Wednesday.  It was up more than $1.50 at the open, to get over $29, but closed down about $1 at $26.54.

Now, this morning (Mon 4/23) before the open, Stifel Nicolaus analyst Mark Astrachan downgraded Jones from “Buy” to “Hold” which sent the stock down about $1.50 to $25.50 where it found support.  It’s now pretty much competely reversed that move and is down only about 20 cents (12:05pm PST).

Here’s how the analysts stand right now on Jones Soda:

Stifel Nicolaus: Hold – downgraded Mon 4/23 from “Buy”

Think Equity Partners: Sell – downgraded Tue 4/17 from “Buy”

Piper Jaffray: Buy – re-iterated Thursday 4/5

Longbow: Buy – upgraded Fri 3/9 from “Hold”

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