Can Barnes & Noble Stock See a Turnaround?

With shares of Barnes & Noble (NYSE:BKS) trading around $14, is BKS 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

Barnes & Noble is a content, commerce, and technology book-selling company that provides customers access to books, magazines, newspapers, and other content across its multichannel distribution platform. The company operates 1,338 bookstores in 50 states, 647 bookstores on college campuses, and one e-commerce site. It also develops digital content products and software. Barnes & Noble operates in three segments: B&N Retail, B&N College, and Nook.

Barnes & Noble promoted Michael Huseby, who has served as its chief financial officer and president, to chief executive officer as the chain struggles to retain customers increasingly shifting to digital books. Huseby also has been elected to the board, the New York-based company said in a statement. Barnes & Noble has been heavily investing in its Nook digital unit to gain a foothold in electronic books. After some initial success with its Nook e-readers and tablets, the division’s sales slumped during the 2012 holidays and haven’t recovered. Cratering sales led to the July departure of CEO William Lynch, leaving Huseby as the company’s top executive.

T = Technicals on the Stock Chart Are Mixed

Barnes & Noble stock has been volatile in recent times. The stock is currently trading sideways and may need time to stabilize before heading higher. 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, Barnes & Noble is trading between its rising key averages, which signals neutral price action in the near-term.

BKS

Source: Thinkorswim

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

Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

Barnes & Noble options

49.84%

40%

38%

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

Put IV Skew

Call IV Skew

February Options

Average

Average

March Options

Average

Average

As of Wednesday, there is average demand from call and put buyers or sellers, all neutral over the next two months. To summarize, investors are buying a significant amount of call and put option contracts and are leaning neutral 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 Barnes & Noble’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for Barnes & Noble 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)

314.29%

-10.26%

-110.37%

-125.35%

Revenue Growth (Y-O-Y)

-8.01%

-8.53%

-4.7%

-8.82%

Earnings Reaction

-5.96%

-12.35%

-17.05%

3.34%

Barnes & Noble has seen rising earnings and decreasing revenue figures over the last four quarters. From these numbers, the markets have been disappointed with Barnes & Noble’s recent earnings announcements.

P = Average Relative Performance Versus Peers and Sector

How has Barnes & Noble stock done relative to its peers – Amazon (NASDAQ:AMZN), Apple (NASDAQ:AAPL), and Google (NASDAQ:GOOG) — and sector?

Barnes & Noble

Amazon

Apple

Google

Sector

Year-to-Date Return

-1.07%

0.22%

-3.11%

1.75%

-1.55%

Barnes & Noble has been an average relative performer, year to date.

Conclusion

Barnes & Noble is the last remaining nationwide bookstore, and it continues to struggle against current competition. The company promoted Michael Huseby to chief executive officer. The stock has been volatile and is currently trading sideways. Over the last four quarters, earnings have been rising while revenues have been declining, which has disappointed investors in the company. Relative to its peers and sector, Barnes & Noble has been an average year-to-date performer. WAIT AND SEE if Barnes & Noble can stabilize this coming quarter.

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