Is Alcatel-Lucent Undervalued?

With shares of Alcatel-Lucent (NYSE:ALU) trading around $1, is ALU 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

Alcatel-Lucent is a France based company that proposes solutions used by service providers, businesses, and governments worldwide to offer voice, data, and video services to their own customers. It is also engaged in mobile, fixed, Internet Protocol and optics technologies, applications and services. The company operates in three business segments: Networks; Software, Services and Solutions and Enterprise. As consumers and businesses continue to connect at an increasing rate, communications companies like Alcatel-Lucent stand to see rising profits. However, the company must adapt to new technologies if they are to see a rising consumer base.

T = Technicals on the Stock Chart are Strong

Alcatel-Lucent stock has been on a path towards lower prices in recent years. The stock  seems to be forming a base that it will use to establish a value zone. 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, Alcatel-Lucent is trading above its rising key averages which signal neutral to bullish price action in the near-term.

ALU

(Source: Thinkorswim)

NEW! Discover a new stock idea each week for less than the cost of 1 trade. CLICK HERE for your Weekly Stock Cheat Sheets NOW!

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

Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

Alcatel-Lucent Options

62.12%

43%

40%

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

Put IV Skew

Call IV Skew

July Options

Flat

Average

August 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 significant 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 Decreasing 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 Alcatel-Lucent’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for Alcatel-Lucent look like and more importantly, how did the markets like these numbers?

2013 Q1

2012 Q4

2012 Q3

2012 Q2

Earnings Growth (Y-O-Y)

-203.11%

-423.67%

-171.56%

-342.68%

Revenue Growth (Y-O-Y)

-3.14%

0.94%

-7.32%

-19.53%

Earnings Reaction

-1.42%

-7.55%

-9.9%

-2.83%

Alcatel-Lucent has seen decreasing earnings and revenue figures over most of the last four quarters. From these numbers, the markets have not been too happy with Alcatel-Lucent’s recent earnings announcements.

P = Excellent Relative Performance Versus Peers and Sector

How has Alcatel-Lucent stock done relative to its peers, Cisco (NASDAQ:CSCO), Nokia (NYSE:NOK), Ericsson (NASDAQ:ERIC), and sector?

Alcatel-Lucent

Cisco

Nokia

Ericsson

Sector

Year-to-Date Return

28.06%

23.06%

-11.77%

15.35%

14.33%

Alcatel-Lucent has been a relative performance leader, year-to-date.

NEW! Discover a new stock idea each week for less than the cost of 1 trade. CLICK HERE for your Weekly Stock Cheat Sheets NOW!

Conclusion

Alcatel-Lucent is a provider of mobile and communications solutions to growing businesses and consumers worldwide. The stock seems to have established a price value zone and is now headed higher. Over the last four quarters, earnings and revenue figures have been declining which has produced unhappy investors in the company. Relative to its peers and sector, Alcatel-Lucent has been a year-to-date performance leader. WAIT AND SEE what Alcatel-Lucent does in coming quarters.

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 Articles About:   , , ,  

More from The Cheat Sheet