Will Google Continue Its Explosive Run Post-Earnings?

With shares of Google (NASDAQ:GOOG) trading around $1,010, 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 engage with information. The business is based on the following areas: search, advertising, operating systems and platforms, and enterprise. The company generates revenue primarily by delivering online advertising. Google is a search giant with most of the market share, largely because of its execution and delivery. An increasing number of consumers and companies worldwide are coming online, which will surely increase the amount of eyes on the company’s ads and, in turn, advertising revenue. At this rate, look for Google to remain on top of the Internet world.

Google shares are up after reaching an all-time high in after-hours trading on Thursday on third-quarter earnings that beat expectations. Strength in Google’s search sector, which makes up 92 percent of the company’s overall business, was credited for the growth, according to CNNMoney. Earnings came in at $10.74 per share and sales grew 12 percent year-over-year to $14.9 billion. Google still showed losses in its mobile search and Motorola businesses, however.

T = Technicals on the Stock Chart Are Strong

Google stock has been exploding to the upside in the past several years. The stock is currently trading near all-time highs and looks poised 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, Google is trading above its rising key averages, which signals neutral to bullish price action in the near-term.

GOOG

Source: Thinkorswim

Taking a look at the implied volatility 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

20.56%

0%

0%

What does this mean? This means that investors or traders are buying a very 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 Friday, 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.

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?

2013 Q3

2013 Q2

2013 Q1

2012 Q4

Earnings Growth (Y-O-Y)

21.08%

-5.53%

13.6%

17.06%

Revenue Growth (Y-O-Y)

11.94%

15.52%

31.23%

24.87%

Earnings Reaction

13.76%*

-1.55%

4.43%

5.49%

Google has seen increasing earnings and revenue figures over the last four quarters. From these numbers, markets have been excited about Google’s recent earnings announcements.

* As of this writing

P = Average Relative Performance Versus Peers and Sector

How has Google stock done relative to its peers – Yahoo (NASDAQ:YHOO), Microsoft (NASDAQ:MSFT), and Baidu (NASDAQ:BIDU) — and sector?

Google

Yahoo!

Microsoft

Baidu

Sector

Year-to-Date Return

42.21%

66.91%

30.63%

63.96%

47.93%

In a strong sector, Google has been an average relative performer, year-to-date.

Conclusion

Google is an Internet giant that provides valuable search and advertising services to a growing user base worldwide. A recent earnings release has markets buzzing about the company. The stock has been exploding higher in recent years and is currently trading near all-time high prices. Over the last four quarters, earnings and revenues have been rising, which has investors excited about recent earnings announcements. Relative to its strong peers and sector, Google has been an average year-to-date performer. Look for Google to OUTPERFORM.

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