Where Will Sony Stock Go Next?

With shares of Sony (NYSE:SNE) trading around $22, 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 Joe, as well as professional users. Look for Sony to continue to be a top choice for avid technology adopters worldwide.

Sony electronics division made a profit in the second quarter for the first time in two years, but the company is still forecasting difficulties for its electronics ventures in the future. The uncertainty surrounding Sony’s ability to compete in the electronics market has increased pressure on the board to consider activist investor Daniel Loeb’s suggestion that the company split in two, creating separate businesses for electronics and Sony’s much more profitable entertainment arm.

T = Technicals on the Stock Chart are Strong

Sony stock has not done very well over the last few years. The stock is currently seeing a strong bounce that may take it towards higher prices. Analyzing the price trend and its strength can be done using key simple moving averages.

What are the key moving averages? They are 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 above its rising key averages, which signals neutral to bullish 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

39.41%

0%

0%

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

Put IV Skew

Call IV Skew

August Options

Flat

Average

September Options

Flat

Average

As of today, there is 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 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 what that means for Sony’s stock.

E = Earnings Are Increasing Quarter-Over-Quarter

Rising stock prices are often strongly correlated with rising earnings and revenue growth. In addition, reactions to the last four quarterly earnings announcement can 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 Q2

2013 Q1

2012 Q4

2012 Q3

Earnings Growth (Y-O-Y)

82.50%

125.35%

93.93%

43.45%

Revenue Growth (Y-O-Y)

36.00%

-5.41%

-4.07%

0.48%

Earnings Reaction

4.18%*

0.78%

-4.36%

0.68%

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

*As of this writing

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 the overall sector?

Sony

Microsoft

Canon

Dolby Laboratories

Sector

Year-to-Date Return

95.98%

18.61%

-20.00%

12.65%

17.92%

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 recently reported earnings that made investors pretty happy, and the stock is now seeing a strong bounce from the beginning of the year. Over the last four quarters, earnings have been rising and revenue figures have been improving, which has generally pleased investors. Relative to its peers and sector, Sony has been a year-to-date performance leader. Look for Sony to continue to OUTPERFORM.

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