Does Honda Motor Stock Have a Bright Future?

With shares of Honda Motor (NYSE:HMC) trading around $40, is HMC 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

Honda Motor develops, produces, and manufactures a variety of motor products ranging from small general-purpose engines and scooters to specialty sports cars. The company’s business segments are the motorcycle business, automobile business, financial services business, and power product and other businesses. Honda conducts its operations in Japan and worldwide, including North America, Europe, and Asia.

Honda reported earnings that showed its profit rose less than expected. Net profit increased to 120.4 billion yen from 82.2 billion yen a year ago but came in below analyst expectations of 134.9 billion yen, according to analysts surveyed by Reuters. Honda’s profit forecasts for the full year also came in below expectations. Honda saw improvements in car sales in the U.S. and motorcycle sales in India and Thailand, but the company has been doing some big spending to build new plants and boost production.

T = Technicals on the Stock Chart Are Strong

Honda Motor stock has not made significant progress in recent months. The stock is currently trading at all time highs. 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, Honda Motor is trading above its rising key averages, which signal neutral to bullish price action in the near-term.

HMC

(Source: Thinkorswim)

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

Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

Honda Motor Options

22.29%

0%

0%

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

November Options

Flat

Average

December 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 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 Honda Motor’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for Honda Motor 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)

46.37%

-25.10%

-7.58%

45.84%

Revenue Growth (Y-O-Y)

27.25%

-6.29%

-0.31%

12.10%

Earnings Reaction

-0.37%*

-0.74%

N/A

N/A

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

* As of this writing

P = Weak Relative Performance Versus Peers and Sector

How has Honda Motor stock done relative to its peers, General Motors (NYSE:GM), Toyota Motor (NYSE:TM), Ford Motor (NYSE:F), and sector?

Honda Motor

General Motors

Toyota Motor

Ford Motor

Sector

Year-to-Date Return

8.39%

29.03%

39.64%

34.83%

28.97%

Honda Motor has been an underperformer, year-to-date.

Conclusion

Honda provides vehicles and related products to consumers and companies around the world. The company’s recent earnings showed that its profit rose less then expected. The stock has struggled to make significant progress however, it’s now trading at all time highs. Over the last four quarters, earnings and revenues have been mixed which has not pleased investors. Relative to its peers and sector, Honda has been an underperformer year-to-date. WAIT AND SEE what Honda does this coming quarter.

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