Will Akamai Technologies See Rising Prices?

With shares of Akamai Technologies (NASDAQ:AKAM) trading around $46, is AKAM 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

Akamai Technologies provides content delivery and cloud infrastructure services for the delivery of content and applications over the Internet. The company’s solutions range from delivery of conventional content on websites to tools that support the delivery and operation of cloud-based applications, to live and on-demand streaming video capabilities all designed to help its customers interact with people accessing the Internet from myriad devices and locations around the world. Cloud services and computing are increasing in popularity in recent years. As consumers and companies are able to outsource their needs to cloud services and increase efficiency and lower cost, look for companies like Akamai Technologies to see rising profits.

T = Technicals on the Stock Chart are Strong

Akamai Technologies stock has struggled in recent years as part of a multi-year consolidation. The stock is now trading near the top-end of a range extending back a few years. 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, Akamai Technologies is trading above its rising key averages which signal neutral to bullish price action in the near-term.

AKAM

(Source: Thinkorswim)

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

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Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

Akamai Technologies Options

29.3%

70%

71%

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

June Options

Flat

Average

July Options

Flat

Average

As of today, there is an 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 significant 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 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 Akamai Technologies’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for Akamai Technologies 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)

62.50%

14.40%

17.39%

-4.00%

Revenue Growth (Y-O-Y)

15.21%

16.72%

22.52%

19.61%

Earnings Reaction

17.7%

-15.19%

6.72%

24.03%

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

P = Excellent Relative Performance Versus Peers and Sector

How has Akamai Technologies stock done relative to its peers, Level 3 Communications (NYSE:LVLT), Limelight Networks (NASDAQ:LLNW), Internap Network (NASDAQ:INAP), and the sector?

Akamai Technologies

Level 3 Communications

Limelight Networks

Internap Network

Sector

Year-to-Date Return

13.82%

-6.62%

-0.90%

16.08%

7.31%

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

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Conclusion

Akamai Technologies provides new cloud services and computing technology that is being adopted at increasing rates by companies and consumers worldwide. The stock has been quiet in recent times but is now trading at the top-end of a multi-year range. Over the last four quarters, Akamai Technologies has seen increasing earnings and revenue figures that have kept investors excited. Relative to its peers and sector, Akamai Technologies has been a year-to-date performance leader. Look for Akamai Technologies to OUTPERFORM.

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