Should Google Be In Your Portfolio?

With shares of Google (NASDAQ:GOOG) trading around $1,195, 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 is reportedly looking to open its first retail store in Manhattan’s trendy Soho neighborhood, just blocks from where arch rival Apple (NASDAQ:AAPL) has one of its biggest retail locations. According to a report from Crain’s, Google is close to signing a lease for retail space located at 131 Greene St. for what would be the tech company’s first retail store. Crain’s reports that Greene Street has become a popular area of Soho, also boasting storefronts from brands like Louis Vuitton, Tiffany’s, and Stella McCartney, among other high-end retailers. The cobblestone street has come to rival the popularity of other Soho areas like Spring Street, Prince Street, and West Broadway.

Apple’s Soho location is located on Prince Street, just blocks from the space Google is looking to buy. The publication added that the arrival of Google could drive up the rent on Greene Street even more, just as Apple’s store did for Prince Street. Real estate brokers cited by the publication said that rent and property value on the street has already skyrocketed in recent years, and the arrival of the first Google store will likely drive prices up even further. The store would draw more foot traffic to the street, which will then increase the price of store fronts looking to benefit from that growth in traffic.

T = Technicals on the Stock Chart are Strong

Google stock has been exploding to the upside in the past several years. The stock is currently moving 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, Google is trading above its rising key averages which signal neutral to bullish 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

25.92%

90%

88%

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 thirty and ninety trading days.

Put IV Skew

Call IV Skew

April Options

Flat

Average

May 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 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 = Excellent Relative Performance Versus Peers and Sector

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

Google

Yahoo

Microsoft

Baidu

Sector

Year-to-Date Return

6.62%

-2.97%

2.11%

-8.67%

-1.72%

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

Conclusion

Google is an Internet giant that provides valuable search and advertising services to a growing user base worldwide. The company is reportedly looking to open its first retail store in Manhattan’s trendy Soho neighborhood. The stock has been exploding higher in recent years and looks poised to continue. 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 a year-to-date performance leader. Look for Google to continue to OUTPERFORM.

Using a solid investing framework such as this can help improve your stock-picking skills. Don’t waste another minute — click here and get our CHEAT SHEET stock picks now.

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