Where Will Lions Gate Entertainment Go Next?

With shares of Lions Gate Entertainment (NYSE:LGF) trading around $34, is LGF 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

Lions Gate Entertainment is an entertainment company that engages in motion picture production and distribution, television programming and syndication, home entertainment, family entertainment, digital distribution, new channel platforms, and international distribution and sales activities. The company operates through two segments: Motion Pictures and Television Production.

The Motion Pictures segment engages in the development and production of feature films; acquisition of North American and worldwide distribution rights; North American theatrical, home entertainment, and television distribution of feature films produced and acquired; and worldwide licensing of distribution rights to feature films produced and acquired. The Television Production segment is involved in the development, production, and worldwide distribution of television productions, including television series, television movies and mini-series, and non-fiction programming.

Lions Gate Entertainment recently reported earnings that beat Wall Street’s expectations. However, it came up short on the revenue expectation. The revenue miss is not a positive sign to investors who seek high growth out of the company.

T = Technicals on the Stock Chart are Strong

Lions Gate Entertainment stock has been exploding higher in recent motnhs. The stock is now trading near highs for the year and is not yet showing any significant signs of slowing. 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, Lions Gate Entertainment is trading above its rising key averages which signal neutral to bullish price action in the near-term.

LGF

(Source: Thinkorswim)

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

Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

Lions Gate Entertainment Options

32.43%

0%

0%

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

Put IV Skew

Call IV Skew

August Options

Flat

Average

September 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 minimal 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 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 Lions Gate Entertainment’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for Lions Gate Entertainment 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)

139.39%

453.21%

2800.00%

378.95%

Revenue Growth (Y-O-Y)

-26.92%

N/A

130.20%

97.43%

Earnings Reaction

-0.47%*

2.74%

-0.60%

14.24%

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

*As of this writing

P = Excellent Relative Performance Versus Peers and Sector

How has Lions Gate Entertainment stock done relative to its peers, Disney (NYSE:DIS), Twenty-First Century Fox (NASDAQ:FOXA), Viacom (NASDAQ:VIAB), and sector?

Lions Gate Entertainment

Disney

Twenty-First Century Fox

Viacom

Sector

Year-to-Date Return

107.20%

30.55%

47.91%

52.64%

33.49%

Lions Gate Entertainment has been a relative performance leader, year-to-date.

Conclusion

Lions Gate Entertainment is involved in motion picture production and distribution as well as television programming and syndication. A recent earnings report has not impressed investors very much. The stock has been exploding higher, in recent months, and is now trading near highs for the year. Over the last four quarters, investors in the company have had mixed feelings as earnings have been improving while revenue figures have been mixed. Relative to its peers and sector, Lions Gate Entertainment has been a year-to-date performance leader. Look for Lions Gate Entertainment to continue to OUTPERFORM.

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