Will Google Stock Continue to See Rising Prices?

Googl

With shares of Google (NASDAQ:GOOG) trading around $900, 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 focused 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. Doing what it does, look for Google to remain on top of the Internet world.

On Thursday, Google’s earnings fell short of analyst expectations. The company posted a decline in ad rates, as it hasn’t been able to capitalize on mobile ads. On top of that, Google’s Motorola Mobility also lost the company some money. The company missed the mean analyst estimate, as well as the average revenue estimate.

T = Technicals on the Stock Chart are Strong

Google stock has been exploding higher over the last several years. The stock is now trading slightly below all-time high prices, where it may need to spend some time. 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, Google is trading slightly above its rising key averages, which signal neutral to bullish price action in the near-term.

GOOG

(Source: Thinkorswim)

Taking a look at the implied volatility (red) 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

19.54%

0%

0%

What does this mean? This means that investors or traders are buying a very small 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 small 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 Google’s stock.

E = Earnings Are Mixed Quarter-Over-Quarter

Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. The last four quarterly earnings announcement reactions can also 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 Q2

2013 Q1

2012 Q4

2012 Q3

Earnings Growth (Y-O-Y)

-5.53%

13.60%

17.06%

-21.61%

Revenue Growth (Y-O-Y)

15.52%

31.23%

24.87%

45.07%

Earnings Reaction

-1.68%*

4.43%

5.49%

-1.90%

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

* As of this writing

P = Excellent Relative Performance Versus Peers and Sector

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

Google

Yahoo!

Microsoft

Baidu

Sector

Year-to-Date Return

27.08%

47.69%

18.44%

10.37%

26.51%

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

Conclusion

Google is an Internet giant that provides very valuable search and advertising services to a growing user base worldwide. Recently, a negative earnings report upset company investors. The stock has been on a powerful run in recent years, and is now consolidating slightly below all-time high prices. Over the last four quarters, investors have had mixed feelings about recent earnings reports, as earnings have been mixed, while revenue figures have been rising. Relative to its peers and sector, Google has been a year-to-date performance leader. Look for Google to get past this and OUTPERFORM.

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