Is JPMorgan Chase Well-Positioned for the Future?

With shares of JPMorgan Chase & Co. (NYSE:JPM) trading around $57, is JPM an OUTPERFORM, WAIT AND SEE, or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

T = Trends for a Stock’s Movement

JPMorgan Chase is a financial holding company that provides various financial services worldwide. The company is engaged in investment banking, financial services for consumers and small businesses, commercial banking, financial transaction processing, asset management, and private equity. Financial services companies like JPMorgan Chase are essential for well-functioning economies around the world.

Market expectations were pretty low for JPMorgan going into the company’s second-quarter earnings release, and the company was able to easily beat the numbers. But while the stock rose in the days following this earnings beat, and while management seems to be pretty optimistic in the press release and conference call, the fact remains that JPMorgan released weak earnings. The company’s net revenue fell 5 percent year-over-year, and net income fell by a whopping 21 percent. These are simply lousy numbers, and despite this the company still trades at 15 times earnings, a rather rich price-to-earnings multiple for a company reporting declining earnings.

T = Technicals on the Stock Chart Are Mixed

JPMorgan Chase stock has struggled to make significant progress. The stock is currently pulling back and may need time to stabilize before heading higher. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, JPMorgan Chase is trading above its rising key averages which signal neutral to bullish price action in the near-term.

JPM

(Source: Thinkorswim)

Taking a look at the implied volatility (red) and implied volatility skew levels of JPMorgan Chase options may help determine if investors are bullish, neutral, or bearish.

Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

JPMorgan Chase options

16.10%

3%

0%

What does this mean? This means that investors or traders are buying a small amount of call and put options contracts, as compared to the last 30 and 90 trading days.

Put IV Skew

Call IV Skew

August Options

Flat

Average

September Options

Flat

Average

As of today, there is an average demand from call buyers or sellers and low demand by put buyers or high demand by put sellers, all neutral to bullish over the next two months. To summarize, investors are buying a small amount of call and put option contracts and are leaning neutral to bullish over the next two months.

On the next page, let’s take a look at the earnings and revenue growth rates and the conclusion.

E = Earnings Are Decreasing Quarter-Over-Quarter

Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. Also, the last four quarterly earnings announcement reactions help gauge investor sentiment on JPMorgan Chase’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for JPMorgan Chase look like and more importantly, how did the markets like these numbers?

2014 Q2

2014 Q1

2013 Q4

2013 Q3

Earnings Growth (Y-O-Y)

-8.75%

-19.5%

-6.47%

-112.14%

Revenue Growth (Y-O-Y)

-3.01%

-19.22%

-7.02%

-7.67%

Earnings Reaction

3.51%

-3.65%

0.06%

-0.01%

JPMorgan Chase has seen decreasing earnings and revenue figures over the last four quarters. From these numbers, the markets have had conflicting feelings about JPMorgan Chase’s recent earnings announcements.

P = Excellent Relative Performance Versus Peers and Sector

How has JPMorgan Chase stock done relative to its peers, Bank of America (NYSE:BAC), Citigroup (NYSE:C), Wells Fargo (NYSE:WFC), and sector?

JPMorgan Chase

Bank of America

Citigroup

Wells Fargo

Sector

Year-to-Date Return

0.39%

-0.39%

-4.38%

12.71%

3.08%

JPMorgan Chase has been a relative performance leader, year-to-date.

Conclusion

JPMorgan Chase is a bellwether in the banking space that forms an essential part of the United States financial system. The stock has struggled to make significant progress and is currently pulling back. Over the last four quarters, earnings and revenues have been decreasing, which has produced conflicting feelings among investors. Relative to its peers and sector, JPMorgan Chase has been a year-to-date performance leader. WAIT AND SEE what JPMorgan Chase does this quarter.

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