Is Sony Stock a Buy?

With shares of Sony (NYSE:SNE) trading around $20, is Sony 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. Its 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 Joe as well as professional users. Look for Sony to continue to be a top choice for avid technology adopters worldwide.

Sony electronics division made a profit in the second quarter for the first time in two years, but the company is still forecasting difficulties for its electronics ventures in the future. The uncertainty surrounding Sony’s ability to compete in the electronics market has increased pressure on the board to consider activist investor Daniel Loeb’s suggestion that the company split in two, creating separate businesses for electronics and Sony’s much more profitable entertainment arm.

T = Technicals on the Stock Chart are Strong

Sony stock has not done very well in the last several months. However, the stock is now witnessing a very strong bounce this year. 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 between 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

32.19%

0%

0%

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

Put IV Skew

Call IV Skew

September Options

Flat

Average

October 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 small 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 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 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 Q2

2013 Q1

2012 Q4

2012 Q3

Earnings Growth (Y-O-Y)

82.50%

125.35%

93.93%

43.45%

Revenue Growth (Y-O-Y)

36.00%

-5.41%

-4.07%

0.48%

Earnings Reaction

4.37%

0.78%

-4.36%

0.68%

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

P = Excellent Relative Performance Versus Peers and Sector

How has Sony stock 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

78.04%

18.76%

-20.20%

10.50%

13.47%

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

Conclusion

Sony is a provider of innovative technology products to consumers and companies worldwide. The company recently reported earnings that really pleased the street. The stock is currently seeing a nice bounce this year after struggling in the last few years. Over the last four quarters, earnings have been increasing while revenue figures have been mixed which has led to pleased investors in the company. Relative to its peers and sector, Sony has been a year-to-date performance leader. Look for Sony to continue to OUTPERFORM.

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