Should You Take a Chance With Google?

With shares of Google (NASDAQ:GOOG) trading around $531, 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.

YouTube, owned by Google, is out on the prowl for ways to make more money in ad bucks. To do that, it needs to find either more viewers or content that interests advertisers more, or both. While YouTube naturally is seeking out ways to do these on its own, it may also be looking at a high-profile acquisition to boost it further in the right direction. That acquisition could be Twitch. Twitch.TV is a major player in video game media. Its platform allows gamers to record their gameplay and broadcast it live to the website, where watchers can see the gamer’s exploits and adventures, and wins and losses, all in real time. Just how major is it? The most major.

According to broadband network solutions company Sandvine, Twitch.TV “has established itself among the top-15 applications on many fixed networks across the globe, and now generates more traffic than HBO GO on U.S. networks.” Qwilt, a provider of media analytics, reported that Twitch is the “No. 1 top live streaming video site in the world.” With 45 million monthly users streaming 12 billion minutes each month, it’s no surprise Twitch was able to take that rank.

T = Technicals on the Stock Chart Are Mixed

Google stock has been pulling back in recent times. However, 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 between its rising key averages, which signals neutral price action in the near-term.

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

17.9%

23%

20%

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

Put IV Skew

Call IV Skew

June Options

Average

Average

July Options

Average

Average

As of Tuesday, there is average demand from call and put buyers or sellers, all neutral over the next two months. To summarize, investors are buying a minimal 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 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 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?

2014 Q1

2013 Q4

2013 Q3

2013 Q2

Earnings Growth (Y-O-Y)

-49.31%

5%

21.08%

-5.53%

Revenue Growth (Y-O-Y)

10.38%

16.92%

11.94%

15.52%

Earnings Reaction

-3.67%

4.01%

13.79%

-1.55%

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

P = Weak 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

-4.23%

-3.57%

0.66%

5.37%

-1.44%

Google has been a poor relative performer, year-to-date.

Conclusion

Google is an Internet giant that provides valuable search and advertising services to a growing user base worldwide. YouTube has reached a deal with Twitch to acquire it for $1 billion in cash. The stock has been pulling back in recent times but is currently moving higher. Over the last four quarters, earnings have been mixed while revenues have been increasing, which has left investors pleased. Relative to its strong peers and sector, Google has been a weak year-to-date performer. WAIT AND SEE what Google does next.

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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