Will Burger King Continue to Rise?

With shares of Burger King (NYSE:BKW) trading around $20, is BKW 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

Burger King, founded in 1954,operates and franchises fast food hamburger restaurants, primarily under the Burger King brand worldwide. As of December 31, 2012, it operated 7,293 franchise restaurants and 183 company restaurants in the United States and Canada; 2,989 franchise restaurants and 132 company restaurants in Europe, the Middle East, and Africa; 1,290 franchise restaurants and 100 company restaurants in Latin America and the Caribbean; and 1,007 franchise restaurants and 3 company restaurants in the Asia Pacific.

Burger King reported financial results for the third quarter ended September 30, 2013. BKW Chief Executive Officer, Daniel Schwartz commented, “Our positive momentum continued in the third quarter, as we delivered double-digit organic EBITDA growth and industry best-in-class margins. We grew comparable sales across all three international regions and opened 133 net new restaurants globally.”

T = Technicals on the Stock Chart Are Strong

Burger King stock has seen a consistent up and downtrend. The stock is currently trading at all-time highs. 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, Burger King is trading above its rising key averages, which signal neutral to bullish price action in the near-term.

BKW

(Source: Thinkorswim)

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

Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

Burger King Options

23.30%

0%

0%

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

November Options

Flat

Average

December 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 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 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 Burger King’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for Burger King 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)

850.00%

-19.85%

-17.97%

-0.43%

Revenue Growth (Y-O-Y)

-39.63%

-48.54%

-42.50%

-30.33%

Earnings Reaction

4.71%*

-1.79%

1.16%

4.70%

Burger King has seen decreasing earnings and revenue figures over the last four quarters. From these numbers, the markets have had mixed feelings about Burger King’s recent earnings announcements.

* As of this writing

P = Poor Relative Performance Versus Peers and Sector

How has Burger King stock done relative to its peers, Jack in the Box (NASDAQ:JACK), McDonald’s (NYSE:MCD), Wendy’s (NYSE:WEN), and sector?

Burger King

Jack in the Box

McDonald’s

Wendy’s

Sector

Year-to-Date Return

27.13%

41.75%

7.95%

86.06%

26.61%

Burger King has been an underperformer, year-to-date.

Conclusion

Burger King operates and franchises fast food hamburger restaurants.The stock has been in an up and downtrend, but is currently trading at all time highs. Over the last four quarters, earnings and revenue figures have been decreasing, and investors have mixed feelings about the stock. Relative to its peers and sector, Burger King has been an underperformer. WAIT AND SEE what Burger King does this upcoming quarter.

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 from The Cheat Sheet