Is Google A Buy At All-Time Highs?

With shares of Google (NASDAQ:GOOG) trading around $870, 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 connect with information. It’s business is focused on areas, such as search, advertising, operating systems and platforms, and enterprise. The company generates revenue primarily by delivering online advertising. Businesses use its AdWords program to promote their products and services with targeted advertising. In addition, the third parties that comprise the Google Network use its AdSense program to deliver relevant advertisements that generate revenue. Google is a search giant with most of the market share because of its execution and delivery. An increasing number of consumers and companies worldwide are coming online that will surely increase the amount of eyes on its ads and advertising revenue. Look for Google to remain at the top of the Internet world and see rising profits for many years.

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T = Technicals on the Stock Chart are Strong

Google stock has seen its stock explode higher as it gains popularity worldwide. The stock is currently trading at all-time high prices and does not show 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, Google is trading above its rising key averages which signal 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

23.53%

90%

89%

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

June Options

Flat

Average

July 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 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 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?

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2013 Q1

2012 Q4

2012 Q3

2012 Q2

Earnings Growth (Y-O-Y)

13.60%

17.06%

-21.61%

9.64%

Revenue Growth (Y-O-Y)

31.23%

24.87%

45.07%

35.32%

Earnings Reaction

4.43%

5.49%

-1.9%

2.99%

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), Baidu (NASDAQ:BIDU), and sector?

Google

Yahoo!

Microsoft

Baidu

Sector

Year-to-Date Return

23.06%

32.36%

31.26%

-2.53%

25.33%

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

Conclusion

Google provides search and advertising, among other services, to consumers and companies adopting its services at increasing rates worldwide. The stock displayed a powerful move higher that has currently taken it to all-time high prices. Over the last four quarters, earnings and revenue figures have increased for the company which has really pleased investors. Relative to its peers and sector, Google has been an average year-to-date performer. Look for Google to OUTPERFORM.

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