Can IAC Continue to Outperform?

With shares of IAC/InterActiveCorp (NASDAQ:IACI) trading around $44, is IACI 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

IAC is a media and Internet company in the United States and internationally. IAC operates in four segments: Search, Match, ServiceMagic, and Media and Other. Its portfolio consists of the websites Ask.com, About.com, Dictionary.com, Match.com, Chemistry.com, OurTime.com, BlackPeopleMeet.com, OkCupid.com, CollegeHumor.com, Vimeo.com, Tutor.com and many more. Through its platforms, IAC is able to reach a large portion of a diverse audience who increasingly engage with these websites on the daily.

T = Technicals on the Stock Chart are Strong

Over the last decade, IAC has seen a consolidation of its stock price. In recent years, the stock broke above this consolidation and may be headed higher. Since its breakout, the stock pulled back a bit but seems to have found value and is now working its way towards higher prices. 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, IAC is trading around its rising key averages which signal neutral to bullish price action in the near-term.

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IACI

(Source: Thinkorswim)

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

Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

IAC Options

41.65%

93%

90%

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

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Put IV Skew

Call IV Skew

May Options

Average

Average

June Options

Average

Average

As of today, there is an average demand from call and put buyers or sellers, all neutral over the next two months. To summarize, investors are buying a very significant amount of call and put option contracts and are leaning neutral 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 Increasing 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 IAC’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for IAC look like and more importantly, how did the markets like these numbers?

2012 Q4

2012 Q3

2012 Q2

2012 Q1

Earnings Growth (Y-O-Y)

-18.87%

-37.68%

6.82%

100%

Revenue Growth (Y-O-Y)

28.20%

38.23%

40.22%

39.20%

Earnings Reaction

1.46%

-8.41%

5.96%

3.32%

IAC has seen increasing revenue growth but is still working on its earnings growth. From these figures, the markets have generally been pleased about IAC’s latest earnings announcements.

P = Poor Relative Performance Versus Peers and Sector

How has IAC stock done relative to its peers, AOL (NYSE:AOL), Yahoo! (NASDAQ:YHOO), MeetMe (NASDAQ:MEET), and sector?

IAC

AOL

Yahoo!

MeetMe

Sector

Year-to-Date Return

-5.64%

28.99%

21.61%

-40.34%

7.25%

IAC has been a relative underperformer year-to-date.

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Conclusion

IAC operates a multitude of businesses which reach large growing audiences, that show no signs of slowing, across the globe. The stock is now heading higher after a breakout from a short-term pullback on support by investors who were excited about the latest earnings announcement. However, IAC has not caught up to its peers and sector just yet as it has relatively underperformed year-to-date. Look for IAC to OUTPERFORM.

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