Will Barnes & Noble Surge Higher After the Exit of its CEO?

With shares of Barnes & Noble (NYSE:BKS) trading around $18, 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 multi-channel distribution platform. The company operates 1,338 bookstores in 50 states, 647 bookstores on college campuses, one e-commerce site, and develops digital content products and software. Barnes & Noble operates in three segments: B&N Retail, B&N College, and Nook. The company may be preparing to close its doors as it has struggled to compete with Amazon (NASDAQ:AMZN) and Apple (NASDAQ:AAPL). Its founder, Leonard Riggio, has suggested the company may be able to survive if it splits its digital businesses from its physical stores

Barnes & Noble’s CEO, William Lynch, is now leaving the company after the massive failure of Barnes & Noble’s Nook tablets to compete in the tablet or e-reader markets. The bookseller also gave a severely disappointing earnings report recently. The company requires a major restructuring if it looks to compete so look for things to change or the company to continue to struggle.

T = Technicals on the Stock Chart are Mixed

Barnes & Noble stock not managed to do very well over the last few years due to the effectiveness of its competition. The stock is bouncing a bit after trading near lows for the year due to a disappointing earnings report. 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 key averages which signal 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

53.91%

16%

14%

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

Put IV Skew

Call IV Skew

July Options

Steep

Average

August Options

Steep

Average

As of today, there is an average demand from call buyers or sellers and high demand by put buyers or low demand by put sellers, all neutral to bearish 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 bearish 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 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 Q1

2012 Q4

2012 Q3

2012 Q2

Earnings Growth (Y-O-Y)

-110.37%

-125.35%

76.47%

21.21%

Revenue Growth (Y-O-Y)

-4.70%

-8.82%

-0.39%

2.47%

Earnings Reaction

-17.05%

3.34%

-11.15%

-3.88%

Barnes & Noble has seen decreasing earnings and declining revenue figures over most of the last four quarters. From these numbers, the markets have not been pleased with Barnes & Noble’s recent earnings announcements.

P = Excellent Relative Performance Versus Peers and Sector

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

Barnes & Noble

Amazon

Apple

Google

Sector

Year-to-Date Return

21.80%

15.65%

-21.08%

27.97%

11.82%

Barnes & Noble has been a relative performance leader, year-to-date.

Conclusion

Barnes & Noble, the last remaining nationwide bookstore, may be getting ready to close its doors as it struggles against current competition. Recently, it was announced that the current CEO will be leaving his post. The stock has struggled to perform well in recent years but may be stabilizing a bit at current prices. Over the last four quarters, earnings have been decreasing while revenue figures have been declining which has not really pleased investors in the company. Relative to its peers and sector, Barnes & Noble has been a year-to-date performance leader. WAIT AND SEE the direction the company takes in coming quarters.

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.

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