Can Google Move Higher?

With shares of Google (NASDAQ:GOOG) trading around $1,054, 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 has recently accelerated its efforts to acquire more patents despite its public stance against tech companies that stockpile patents for the sole purpose of suing other companies. According to MIT Technology Review’s Antonio Regalado, the U.S. Patent and Trademark Office is awarding Google as many as 10 patents a day, making it the “third or fourth largest winner of software patents after IBM (NYSE:IBM) and Microsoft (NASDAQ:MSFT).” Google now holds more than 51,000 patents and patents pending in contrast to the 38 that it held in 2007, according to MIT Technology Review.

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 trading near all-time highs and looks set 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 signals 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

17.82%

43%

41%

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

December Options

Flat

Average

January Options

Flat

Average

As of Monday, there is 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 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 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 Q3

2013 Q2

2013 Q1

2012 Q4

Earnings Growth (Y-O-Y)

21.08%

-5.53%

13.6%

17.06%

Revenue Growth (Y-O-Y)

11.94%

15.52%

31.23%

24.87%

Earnings Reaction

13.79%

-1.55%

4.43%

5.49%

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 = Average 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

48.99%

86.08%

44.18%

67.89%

62.78%

Google has been an average relative performer, year-to-date.

Conclusion

Google is an Internet giant that provides valuable search and advertising services to a growing user base worldwide. The company has recently accelerated its efforts to acquire more patents despite its public stance against tech companies that stockpile patents for the sole purpose of suing other companies. The stock has been exploding higher in recent years and is currently trading near all-time high prices. Over the last four quarters, earnings and revenues have been rising, which has investors pleased about recent earnings announcements. Relative to its strong peers and sector, Google has been an average year-to-date performer. Look for Google 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.

More from The Cheat Sheet