Is Sony a Buy at These Prices?

With shares of Sony (NYSE:SNE) trading around $21, 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, game, entertainment and financial businesses. The company operates in 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 bring new technologies to the hands of your average joe and professional users. Look for Sony to continue to be a top choice for avid technology adopters worldwide.

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T = Technicals on the Stock Chart are Strong

Sony stock has been in a decline for for the last several years that has taken it to low prices not seen for decades. The stock has seen a strong bid this year that had led to a monster bounce. 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 above its rising key averages which signal neutral to bullish 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

53.50%

90%

89%

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.

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 very significant 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 Improving 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?

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2013 Q1

2012 Q4

2012 Q3

2012 Q2

Earnings Growth (Y-O-Y)

125.35%

93.93%

43.45%

35.67%

Revenue Growth (Y-O-Y)

-5.41%

-4.07%

0.48%

3.61%

Earnings Reaction

0.78%

-4.36%

0.68%

-7.41%

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

P = Excellent Relative Performance Versus Peers and Sector

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

Sony

Microsoft

Canon

Dolby Laboratories

Sector

Year-to-Date Return

91.34%

31.08%

-14.49%

17.46%

25.77%

Sony has been a relative performance leader, year-to-date.

Conclusion

Sony provides access to a large selection of technology products to consumers and companies around the world. The stock has seen an overall decline, over the last several years, but is now bouncing from lows. Over the last four quarters, investors have had mixed feelings about the company as earnings have improved while revenue figures have been mixed. Relative to its peers and sector, Sony has led in year-to-date performance by a wide margin. Look for Sony to continue its bounce and OUTPERFORM.

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