Where Will Barnes & Noble Go Post-Earnings?

With shares of Barnes & Noble (NYSE:BKS) trading around $21, is BKS 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

Barnes & Noble is a content, commerce, and technology book-selling company that provides customers access to books, magazines, newspapers, and other content across its multichannel distribution platform. The company operates 1,338 bookstores in 50 states, 647 bookstores on college campuses, and one e-commerce site. It also develops digital content products and software. Barnes & Noble operates in three segments: B&N Retail, B&N College, and Nook.

Faced with dropping e-reader sales, Barnes & Noble said Wednesday that it is spinning off its Nook business as a separate public company in an effort to boost shareholder value. The split will be completed by the first quarter of next year, the company said. The company also reported its fourth-quarter results, showing a drop in comparable sales at Barnes & Noble stores, in addition to continuing losses with the Nook. Revenue in the Nook unit fell 22 percent to $87 million. Digital content sales fell 19 percent to $62 million. Barnes & Noble posted a fourth-quarter net loss of $36.7 million, or 72 cents a share, compared with a loss of $114.8 million, or $2.04, a year earlier. Revenue rose 3.5 percent to $1.32 billion, helped by the company’s college business. Analysts estimated a loss of 59 cents a share and revenue of $1.19 billion.

“We believe we are now in a better position to begin in earnest those steps necessary to accomplish a separation of Nook Media and Barnes & Noble Retail,” Michael P. Huseby, the company’s chief executive, said in a statement. “We have determined that these businesses will have the best chance of optimizing shareholder value if they are capitalized and operated separately.” The New York-based bookstore chain launched the Nook as an effort to compete with Amazon’s (NASDAQ:AMZN)  popular Kindle electronic reading device. However, the company has struggled to boost electronic book sales along with its tablets and e-readers, even after bringing in Microsoft (NASDAQ:MSFT) and publisher Pearson to help sell the e-reader. The company’s shares on Wall Street rose 5.6 percent to $21.71 shortly after the spinoff announcement.

T = Technicals on the Stock Chart Are Strong

Barnes & Noble stock has been volatile in recent times. The stock is currently trading near highs for the year and looks poised to continue. 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, Barnes & Noble is trading above its rising key averages which signal neutral to bullish price action in the near-term.

BKS

(Source: Thinkorswim)

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

Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

Barnes & Noble options

43.60%

16%

14%

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

Put IV Skew

Call IV Skew

July Options

Flat

Average

August 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 minimal 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 Mixed 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 Barnes & Noble’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for Barnes & Noble look like and more importantly, how did the markets like these numbers?

2014 Q1

2013 Q4

2013 Q3

2013 Q2

Earnings Growth (Y-O-Y)

-64.71%

514.29%

314.29%

-10.26%

Revenue Growth (Y-O-Y)

3.52%

-1.26%

-8.01%

-8.53%

Earnings Reaction

3.84%*

4.23%

-5.96%

-12.35%

Barnes & Noble has seen mixed earnings and rising revenue figures over the last four quarters. From these numbers, the markets have been pleased with Barnes & Noble’s recent earnings announcements.

* As of this writing

P = Excellent Relative Performance Versus Peers and Sector

How has Barnes & Noble stock done relative to its peers, Amazon (NASDAQ:AMZN), Apple (NASDAQ:AAPL), Google (NASDAQ:GOOG), and sector?

Barnes & Noble

Amazon

Apple

Google

Sector

Year-to-Date Return

37.56%

-19.30%

14.71%

2.56%

9.88%

Barnes & Noble has been a relative performance leader, year-to-date.

Conclusion

Barnes & Noble is the last remaining nationwide bookstore, and it continues to struggle against current competition. The company said Wednesday that it is spinning off its Nook business as a separate public company. The stock has been volatile, but is currently trading near highs for the year. Over the last four quarters, earnings have been mixed while revenues have been on the rise. Relative to its peers and sector, Barnes & Noble has been a relative year-to-date performance leader. Look for Barnes & Noble to OUTPERFORM.

Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

Using a solid investing framework such as this can help improve your stock-picking skills. Don’t waste another minute — click here and get our CHEAT SHEET stock picks now.

More From Wall St. Cheat Sheet: