Can Google Break Higher?

With shares of Google (NASDAQ:GOOG) trading around $1,146, 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 might need a find new home for its giant floating showroom in San Francisco Bay. It seems Google is under fire from state authorities for not having the proper permits necessary to construct the barge in its current location. The four-story structure is housed at Treasure Island, a small piece of land between San Francisco and Oakland. The barge rose to fame late last year as a delightful floating enigma in the San Francisco Bay. The vessel was originally spotted by a CNET reporter and Google would not comment on its purpose. People had great fun speculating about the barge, guessing that it was a floating data center, a Google Glass shop, or a luxury event space. It was dubbed the Google Mystery Barge.

Eventually, Google killed the mystery and some of the fun by announcing the structure was going to be an “interactive space where people can learn about new technology.” But shortly after the story picked up steam, Google hit pause on construction of the barge. The U.S. Coast Guard inspected the structure and the San Francisco Bay Conservation and Development Commission (or, BCDC) announced it was meeting with Google about the matter in December. The opening date for the barge was delayed until late 2014, according to CNET, and the boat sat idle in its Treasure Island home.

T = Technicals on the Stock Chart Are Strong

Google stock has been exploding to the upside in the past several years. 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, Google is trading 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

25.61%

43%

41%

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

Put IV Skew

Call IV Skew

March Options

Flat

Average

April 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 minimal 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 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)

5.00%

21.08%

-5.53%

13.60%

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 = 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 sector?

Google

Yahoo

Microsoft

Baidu

Sector

Year-to-Date Return

2.51%

-13.30%

-2.43%

-13.30%

-3.40%

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

Conclusion

Google is an Internet giant that provides valuable search and advertising services to a growing user base worldwide. Th company might need a find new home for its giant floating showroom in San Francisco Bay. The stock has been exploding higher in recent years, but is currently trading sideways. 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 a year-to-date performance leader. Look for Google to continue to OUTPERFORM.

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