Where Will EMC Go Next?

With shares of EMC (NYSE:EMC) trading around $23, is EMC an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

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T = Trends for a Stock’s Movement

EMC develops, delivers, and supports information infrastructure and virtual infrastructure technologies, solutions, and services. The company offers enterprise storage systems and software as well as provides backup and recovery, and disaster recovery, archiving, and information security solutions. The emergence of large enterprise has created a data void that EMC has and will continue to fill. As global business expands, EMC is well-positioned to capitalize and provide the products and services required.

Head on over to the next page to explore the technical landscape of EMC’s stock…

T = Technicals on the Stock Chart are Weak

EMC stock saw a huge rise during the technology boom in the late 1990s followed by a fierce decline. Since then, the stock has rallied a bit on higher highs and higher lows. 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, EMC is trading below its flat key moving averages which signal neutral price action in the near-term.

EMC

(Source: Thinkorswim)

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

Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

EMC Options

24.66%

53%

56%

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

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Put IV Skew

Call IV Skew

April Options

Steep

Average

May Options

Steep

Average

As of today, there is an average demand from call buyers or sellers and high demand by put buyers or low demand by put sellers, all neutral to bearish over the next two months. To summarize, investors are buying an average amount of call and put option contracts and are leaning neutral to bearish 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 EMC’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for EMC look like and more importantly, how did the markets like these numbers?

2012 Q4

2012 Q3

2012 Q2

2012 Q1

Earnings Growth (Y-O-Y)

2.63%

3.7%

20.83%

28.57%

Revenue Growth (Y-O-Y)

8.18%

5.98%

9.62%

10.55%

Earnings Reaction

-4.04%

-0.89%

2.17%

-3.56%

EMC has posted increasing earnings and revenue growth over the last four quarters. From these figures, the markets have been somewhat disappointed about EMC’s last four earnings announcements.

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P = Poor Relative Performance Versus Peers and Sector

How has EMC stock done relative to its peers, Hewlett-Packard (NYSE:HPQ), International Business Machines (NYSE:IBM), NetApp (NASDAQ:NTAP), and sector?

EMC

Hewlett-Packard

IBM

NetApp

Sector

Year-to-Date Return

-3.82%

58.72%

8.63%

-0.41%

0.51%

EMC has trailed its peers and sector by a significant margin.

Conclusion

EMC engages in an area that is essential for global growth. The company is a main support system for large enterprise that fuel many economies. Earnings and revenue, for EMC, has been on the rise over the last four quarters but investors have not been too happy with the posted numbers. This has led the stock to remain stagnant and underperform its peers and sector. WAIT AND SEE what EMC does in the coming quarter.

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