Is Google an Attractive Investment?

With shares of Google (NASDAQ:GOOG) trading around $536, is GOOG 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

Google is a global technology company focused on improving the ways people engage with information. The business is based on the following areas: search, advertising, operating systems and platforms, and enterprise. The company generates revenue primarily by delivering online advertising. Google is a search giant with most of the market share, largely because of its execution and delivery. An increasing number of consumers and companies worldwide are coming online, which will surely increase the amount of eyes on the company’s ads and, in turn, advertising revenue. At this rate, look for Google to remain on top of the Internet world.

Google on Thursday announced that Google Glass will be available for anyone in the U.S. to purchase on one day only: Tuesday, April 15. Reports started coming out on Thursday that Google would open its Glass Explorer program for anyone in the U.S. on one day this month, and Google confirmed those reports later in the day, saying: “Whoops. So… we’d planned to post this next week but it looks like the cat’s out of the bag now.” Starting at 6 a.m. Pacific Time on Tuesday, any adult in the U.S. will have the chance to purchase Google Glass for $1,500, plus tax.

T = Technicals on the Stock Chart Are Mixed

Google stock has been pulling back over the last couple of quarters. However, the stock is currently moving higher and looks set to continue this path. 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, Google is trading between its rising key averages, which signals neutral price action in the near-term.

GOOG

Source: Thinkorswim

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

Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

Google Options

38.08%

14%

11%

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

May Options

Average

Average

June Options

Average

Average

As of Monday, there is average demand from call and put buyers or sellers, all neutral over the next two months. To summarize, investors are buying a small 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 Google’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for Google 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)

5%

21.08%

-5.53%

13.6%

Revenue Growth (Y-O-Y)

16.92%

11.94%

15.52%

31.23%

Earnings Reaction

4.01%

13.79%

-1.55%

4.43%

Google has seen increasing earnings and revenue figures over the last four quarters. From these numbers, the markets have been pleased with Google’s recent earnings announcements.

P = Average Relative Performance Versus Peers and Sector

How has Google stock done relative to its peers – Yahoo (NASDAQ:YHOO), Microsoft (NASDAQ:MSFT), and Baidu (NASDAQ:BIDU) — and sector?

Google

Yahoo

Microsoft

Baidu

Sector

Year-to-Date Return

-3.08%

-5.7%

-0.2%

1.95%

-2.75%

Google has been an average performer, year-to-date.

Conclusion

Google is an Internet giant that provides valuable search and advertising services to a growing user base worldwide. The company on Thursday announced that Google Glass will be available for anyone in the U.S. to purchase on one day only: April 15. The stock has been pulling back in recent times but is currently moving higher. Over the last four quarters, earnings and revenues have been rising, which has left investors pleased about recent earnings announcements. Relative to its strong peers and sector, Google has been an average year-to-date performer. WAIT AND SEE what Google does next.

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