Can Google Move Higher?

With shares of Google (NASDAQ:GOOG) trading around $553, 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 has entered a licensing deal with startup Room 77, which makes hotel-booking software; the deal will give Google (and Google smartphones) access to the startup’s mobile and Web-based hotel search and booking technology. In addition, Room 77′s chief technology officer, Calvin Yang, as well as many of the startup’s engineers, will be joining Google’s staff, though the company will continue to maintain its “brand, websites, mobile applications, patents,” and other technology, Bloomberg reports. Room 77 spokeswoman Dawn Lyon and Google spokesman Tim Drinan both confirmed the deal to the news service.

T = Technicals on the Stock Chart Are Mixed

Google stock has been pulling back in recent times. However, the stock is currently bouncing off lows for the year and looks set 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 below its rising key averages, which signals neutral to bearish 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

34.98%

86%

84%

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

Put IV Skew

Call IV Skew

May Options

Steep

Average

June Options

Steep

Average

As of Tuesday, there is 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 significant 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 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 Q4

2013 Q3

2013 Q2

2013 Q1

Earnings Growth (Y-O-Y)

5%

21.08%

-5.53%

13.6%

Revenue Growth (Y-O-Y)

16.92%

11.94%

15.52%

31.23%

Earnings Reaction

4.01%

13.79%

-1.55%

4.43%

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

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

-0.86%

-3.79%

1.11%

0.97%

-1.64%

Google has been an average performer, year-to-date.

Conclusion

Google is an Internet giant that provides valuable search and advertising services to a growing user base worldwide. The company has entered a licensing deal with startup Room 77, which makes hotel-booking software. The stock has been pulling back in recent times but is currently moving higher. Over the last four quarters, earnings and revenues have been rising, which has left investors pleased about recent earnings announcements. Relative to its strong peers and sector, Google has been an average year-to-date performer. WAIT AND SEE what Google does next.

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