Where Will Sony Go Next?

With shares of Sony (NYSE:SNE) trading around $18, is SNE 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. These 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 player as well as professional users. Look for Sony to continue to be a top choice for avid technology adopters worldwide.

Sony has recalled 26,000 of its newest Vaio laptops as Panasonic batteries within the computers have overheated and caught on fire. Sony has asked everyone to stop using the Vaio Fit 11A laptop as soon as possible. According to The Wall Street Journal, Sony has received three different reports of this particular device overheating and causing burns — one in Japan on March 19, one in Hong Kong on March 30, and one in China on April 8. Sony stopped selling the Vaio Fit 11A at the beginning of the month. According to a press release seen by The Wall Street Journal, Sony is identifying the affected computers by serial number and is creating a way to either repair or replace the damaged units. The company said it will make an announcement telling Vaio Fit 11A owners what to do in the coming weeks, but warned them not to use their laptops until they are fixed.

Sony said that it has sold 29,905 of the units world-wide since they debuted in February. A breakdown for where the units were sold shows 7,000 in Asia-Pacific not including Japan and China, 3,600 in Japan, 2,000 in China, 7,000 in Europe, 5,600 in Latin America, and only 500 in the U.S., according to figures from Sony seen by The Wall Street Journal. A spokesperson from Panasonic who spoke to The Wall Street Journal said that the company had indeed provided Sony with the batteries through an outsourcing contract, but declined to say if any other laptop computers also use the same batteries, saying such information is confidential. The spokesperson did say that each battery is altered to the client’s requirements and that the company has not received complaints about any other of its batteries.

T = Technicals on the Stock Chart are Mixed

Sony stock has seen its fair share of struggles over the past few years. The stock is currently trading sideways and may need time to consolidate before heading higher. 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 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

33.04%

96%

93%

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 30 and 90 trading days.

Put IV Skew

Call IV Skew

May Options

Average

Average

June Options

Average

Average

As of today, there is an average demand from call and put buyers or sellers, all neutral over the next two months. To summarize, investors are buying a very significant 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 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 Q4

2013 Q3

2013 Q2

2013 Q1

Earnings Growth (Y-O-Y)

115.39%

22.71%

82.50%

125.35%

Revenue Growth (Y-O-Y)

23.86%

10.64%

-8.96%

-5.41%

Earnings Reaction

3.89%

-11.17%

4.37%

0.78%

Sony has seen increasing earnings and 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 done 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

5.90%

5.21%

-3.31%

10.87%

5.66%

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 has recalled 26,000 of its newest Vaio laptops as Panasonic batteries within the computers have overheated and caught on fire. The stock has seen its fair share of struggles over the past few years and is currently trading sideways. Over the last four quarters, earnings and revenues have been on the rise. However, investors have had mixed feelings about recent earnings announcements. Relative to its peers and sector, Sony has been a year-to-date performance leader. WAIT AND SEE what Sony does this coming quarter.

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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