Is Sony an Attractive Investment?

With shares of Sony (NYSE:SNE) trading around $18, is SNE 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

Sony is involved in the electronics, games, entertainment, and financial businesses. The company operates in several different segments: Consumer Products Services, Professional Device Solutions, Movie, Music, Finance, Mobile, and Other. Through its segments, Sony is able to provide a wide range of products and services. These products include televisions, cameras, personal computers, game consoles, navigation systems, audio and video equipment, software, phones, and media platforms. The company bring new technologies to the hands of your average player as well as professional users. Look for Sony to continue to be a top choice for avid technology adopters worldwide.

Sony sold 1 million units of its new PlayStation 4 video game consoles within the first 24 hours the device was on sale, according to a report from Reuters, giving Sony a big boost before Microsoft Corp. (NASDAQ:MSFT) releases its competing Xbox One on Friday. Sony is counting on the console to help revive its consumer electronics business. The company previously said that it received 1 million preorders for the devices, and it expects to sell 5 million units through March.

T = Technicals on the Stock Chart Are Weak

Sony stock has seen its fair share of struggles over the last few years. The stock is currently trading sideways 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, Sony is trading below its rising key averages, which signal neutral to bearish price action in the near-term.

SNE

(Source: Thinkorswim)

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

Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

Sony Options

30.87%

30%

28%

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

Steep

Average

January Options

Steep

Average

As of today, there is an average demand from call buyers or sellers and high demand by put buyers or low 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 Sony’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for Sony 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)

22.71%

82.50%

125.35%

93.93%

Revenue Growth (Y-O-Y)

10.64%

-8.96%

-5.41%

-4.07%

Earnings Reaction

-11.17%

4.37%

0.78%

-4.36%

Sony has seen increasing earnings and improving revenue figures over the last four quarters. From these numbers, the markets have been pleased with Sony’s recent earnings announcements.

P = Excellent Relative Performance Versus Peers and Sector

How has Sony stock done relative to its peers, Microsoft (NASDAQ:MSFT), Canon (NYSE:CAJ), Dolby Laboratories (NYSE:DLB), and sector?

Sony

Microsoft

Canon

Dolby Laboratories

Sector

Year-to-Date Return

67.23%

39.95%

-17.30%

20.39%

28.56%

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

Conclusion

Sony is a provider of innovative technology products to consumers and companies worldwide. The company sold 1 million units of its new PlayStation 4 video game consoles within the first 24 hours the device was on sale. The stock has struggled in recent years and is now trading sideways. Over the last four quarters, earnings have increased while revenues are improving leaving investors pleased with the company. Relative to its peers and sector, Sony has been a year-to-date performance leader. WAIT AND SEE what Sony does this quarter.

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