Note: The content of this post references an opinion and is for information purposes only. It is not intended to be investment advice. Seek a duly licensed professional for investment advice.
Alternative data is a hot topic these days. From buzz around satellite imagery data to social chatter, there is a deluge of data out there. How can you make use of it, though?
Let’s walk through an example with Sodastream ($SODA). We used Sentieo to plot global web search trends for the “sodastream” keyword (dark blue) against the $SODA stock price (light blue).
The correlation is great, but we don’t suggest that you buy a stock just because alternative data is going up. You should instead use this data as another pillar of a comprehensive investment process. Ask yourself: how does alternative data tie back to the fundamentals of a business?
As consumers, we tend to search for products online before purchasing. In most cases, searching Sodastream signifies interest in the brand or an intent to purchase – let’s call this “digital traffic.” Some percentage of that “traffic” will convert to true revenue as the consumer makes an purchase online or in-store at a later point.
So while search trends will most closely tie to digital traffic, we hope it can be a meaningful indicator for overall Revenue (or other top-line key performance indicators). As we can see from the chart below, that seemed to be the case here. Search trends had a 0.9 r-squared with $SODA’s revenue growth.
This example is just one way that search trends can help you in your fundamental research. Stay tuned for the upcoming posts in this blog series on alternative data search trends.