Does Sony Have a Bright Future?

With shares of Sony (NYSE:SNE) trading around $16, is SNE 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

Sony is involved in the electronics, games, entertainment, and financial businesses. The company operates in several different segments: Consumer Products Services, Professional Device Solutions, Movie, Music, Finance, Mobile, and Other. Through its segments, Sony is able to provide a wide range of products and services. These products include televisions, cameras, personal computers, game consoles, navigation systems, audio and video equipment, software, phones, and media platforms. The company brings new technologies to the hands of your average player as well as professional users. Look for Sony to continue to be a top choice for avid technology adopters worldwide.

Sony unexpectedly forecast a $1.1 billion annual loss and will cut 5,000 more jobs as Chief Executive Officer Kazuo Hirai widens his restructuring plan in the face of shrinking demand for TVs and computers. The net loss will total 110 billion yen in the 12 months ending March 31, the Tokyo-based company said in a statement Thursday, scrapping its revised October projection of a 30 billion- yen profit. Sony will sell its personal computer business and split its TV division into a separate, wholly owned unit after saying it will lose money for a 10th straight year.

Declining sales of key products are hampering Hirai’s revival efforts as the company struggles to find new hits that will attract consumers shifting to mobile devices from Apple (NASDAQ:AAPL) and Samsung (SSNLF.PK). The CEO already failed to meet his pledge to end TV losses after cutting at least 10,000 jobs previously and focusing the company on mobile devices, games and imaging products.

T = Technicals on the Stock Chart Are Mixed

Sony stock has seen its fair share of struggles over the past few years. The stock is currently surging higher 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, Sony is trading below its rising key averages, which signals neutral to bearish price action in the near-term.

SNE

Source: Thinkorswim

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

Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

Sony options

36.83%

70%

68%

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

Put IV Skew

Call IV Skew

March Options

Steep

Average

April Options

Steep

Average

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

2013 Q4

2013 Q3

2013 Q2

2013 Q1

Earnings Growth (Y-O-Y)

115.39%

22.71%

82.5%

125.35%

Revenue Growth (Y-O-Y)

23.86%

10.64%

-8.96%

-5.41%

Earnings Reaction

4.94%*

-11.17%

4.37%

0.78%

*As of this writing.

Sony has seen increasing earnings and mixed revenue figures over the last four quarters. From these numbers, the markets have had conflicting feelings Sony’s recent earnings announcements.

P = Average Relative Performance Versus Peers and Sector

How has Sony stock done relative to its peers – Microsoft (NASDAQ:MSFT), Canon (NYSE:CAJ), and Dolby Laboratories (NYSE:DLB) — and sector?

Sony

Microsoft

Canon

Dolby Laboratories

Sector

Year-to-Date Return

-3.88%

-3.29%

-9.75%

6.17%

-1.68%

Sony has been an average relative performer, year to date.

Conclusion

Sony is a provider of innovative technology products to consumers and companies worldwide. The company forecast a $1.1 billion annual loss and will cut 5,000 more jobs. The stock has struggled in recent years but is now surging higher. Over the last four quarters, earnings have increased while revenues are mixed, which has produced conflicting feelings among investors. Relative to its peers and sector, Sony has been an average year-to-date performer. WAIT AND SEE what Sony does this coming quarter.

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