Can IAC/InterActiveCorp Support These High Prices?

With shares of IAC/InterActiveCorp (NASDAQ:IACI) trading around $40.87, 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:

C = Catalyst for a Stock’s Movement

IAC is involved in the internet business in the United States. The company develops, markets and distributes a number of downloadable toolbars and provides search, reference and content discovery. With the internet growing so quickly, IAC is in an industry that is poised to continue to develop into the future. If done well, this company can use its expertise to develop and enhance the search experience for consumers and businesses nationwide.

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T = Technicals on the Stock Chart are Mixed

IAC’s long-term price chart shows it just recently breaking out from a multi-year range. Just last year, the company made all-time highs on a very strong uptrend, near $55 per share. The stock has pulled back quite a bit from these highs, but could this just be what it needed before heading higher?

Let’s take a look at key simple moving averages in order to identify the trend with more clarity. The key moving averages we will examine are the 50-day, 100-day and 200-day simple moving averages. As of today, the stock is trading below these key averages, and they are all moving around each other in different directions, often a neutral to bearish indicator. It seems as if this stock may need a little bit of time to correct and resume its uptrend.

A way to gain perspective into investor sentiment is through the use of the options market. More specifically, taking a look at the implied volatility and implied volatility skew levels of IAC options may help determine if investors are bullish, neutral or bearish. The implied volatility of IAC options is at 34 percent today, which coincides with a 0 percentile over the last 30 trading days and 10th percentile over the last 90 trading days.

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What does this mean? This means that investors or traders are buying very little protection compared to the last 30 and 90 trading days. The implied volatility skew of March and April put and call options is at average levels. Now, what does this mean? As of today, there is an average demand from call buyers or average supply of call sellers, while there is also an average demand by put buyers or average demand by put sellers, all neutral over the next two months. So investors are buying little protection, and those that are, are neutral over the next two months.

E = Earnings Are Increasing Quarter-Over-Quarter

Earnings and revenue growth rates are an important factor for the price of a stock. What kind of growth rates has IAC reported, and how have investors reacted? The last four quarterly earnings growth (Y-O-Y) rates have been: -37.68, 6.82, 100, and -34.57 percent, while the last four quarterly revenue growth (Y-O-Y) rates have been: 28.19, 38.23, 40.22, and 39.20 percent. There is no distinguishable pattern in the earnings growth rates, but the sales growth rates seem to be slightly declining.

How did the street feel about these numbers? Let’s take a look at the last four quarterly earnings announcement reactions in order to gauge investor sentiment on IAC’s stock. The last four quarters have seen next trading session returns of 1.47, -8.4, 5.96, and 3.32 percent. For the most part, investors have liked these reports.

E = Excellent Relative Performance Versus Peers and Sector

Let’s see how IAC stacks up against its competitors and sector. The company has returned -13.28 percent year-to-date, while its peers, AOL (NYSE:AOL), Google (NASDAQ:GOOG), Yahoo (NASDAQ:YHOO) and sector have returned 21.69, 10.73, 5.83, and 6.15 percent respectively. IAC has significantly trailed its peers and sector year-to-date.

Conclusion

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IAC is involved in search, which is an area that continues to expand. The stock has had a huge run over the last few years, but has pulled back from all-time highs. Its earnings and revenue growth rates have pleased investors, but is it enough to send it to the top of its industry? WAIT AND SEE what IAC/InterActiveCorp does in the following weeks.

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