Is JPMorgan Chase Enticing At Current Prices?

With shares of JPMorgan Chase (NYSE:JPM) trading around $50, is JPM 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

JPMorgan Chase is a financial holding company that provides various financial services worldwide. The company is engaged in investment banking, financial services for consumers and small businesses, commercial banking, financial transaction processing, asset management, and private equity. Financial services companies like JPMorgan Chase are essential for well-functioning economies around the world.

JPMorgan is reportedly getting ready to fight certain charges related to the London Whale trading scandal in court. The Commodity Futures Trading Commission doesn’t appear that it will be willing to accept a settlement from the bank over the matter. JPMorgan has already paid $1 billion to several different regulators to settle charges related to the scandal, but the CFTC opted out of those settlements so it could pursue its own case against the bank, which the CFTC believes behaved recklessly and manipulated the derivatives market, according to a report from the New York Post.

T = Technicals on the Stock Chart Are Mixed

JPMorgan Chase stock has made positive progress in recent years. However, the stock is currently trading sideways as it digests gains from a recent bullish run. 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, JPMorgan Chase is trading between its key averages, which signal neutral price action in the near-term.

JPM

(Source: Thinkorswim)

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

Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

JPMorgan Chase Options

32.42%

96%

95%

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

October Options

Flat

Average

November 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 Rising 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 JPMorgan Chase’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for JPMorgan Chase look like and more importantly, how did the markets like these numbers?

2013 Q2

2013 Q1

2012 Q4

2012 Q3

Earnings Growth (Y-O-Y)

32.23%

33.61%

54.89%

37.25%

Revenue Growth (Y-O-Y)

13.67%

-3.57%

10.16%

5.82%

Earnings Reaction

-0.30%

-0.60%

1.01%

-1.14%

JPMorgan Chase has seen rising earnings and revenue figures over the last four quarters. From these numbers, the markets have expected more from JPMorgan Chase’s recent earnings announcements.

P = Weak Relative Performance Versus Peers and Sector

How has JPMorgan Chase stock done relative to its peers, Bank of America (NYSE:BAC), Citigroup (NYSE:C), Wells Fargo (NYSE:WFC), and sector?

JPMorgan Chase

Bank of America

Citigroup

Wells Fargo

Sector

Year-to-Date Return

15.74%

18.00%

20.53%

17.67%

18.06%

JPMorgan Chase has been a poor relative performer, year-to-date.

Conclusion

JPMorgan Chase is a bellwether in the banking space that forms an essential part of the United States financial system. The company is still deep in trials regarding the London Whale incident. The stock has been moving higher in the last year but is now trading sideways as it consolidates after a recent run. Over the last four quarters, earnings and revenues have been rising, however, investors have expected more during recent earnings announcements. Relative to its peers and sector, JPMorgan Chase has been a weak year-to-date performer. WAIT AND SEE what JPMorgan Chase does in coming quarters.

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