Can Lions Gate Entertainment See Its Stock Continue to Rise?

With shares of Lions Gate Entertainment (NYSE:LGF) trading around $33, is LGF 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

Lions Gate Entertainment is an entertainment company that engages in motion picture production and distribution, television programming and syndication, home entertainment, family entertainment, digital distribution, new channel platforms, and international distribution and sales activities. The company operates through two segments: Motion Pictures and Television Production.

Lions Gate Entertainment may see even higher profits than expected from The Hunger Games sequel, Catching Fire, which was released at midnight on Friday. Seeking Alpha says there has been a “frenzied pre-release demand for tickets” and believes that the film could pull in more than $180 million at the box office over the weekend, while others including Lions Gate have set slightly lower guidance of between $160 million and $175 million. Industry watchers interviewed by the Wall Street Journal think Lions Gate’s Catching Fire will break the record for the biggest 2-D opening weekend box office performance.

T = Technicals on the Stock Chart Are Strong

Lions Gate Entertainment stock has been exploding higher in the last several quarters. The stock is currently trading near all time highs and looks ready 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, Lions Gate Entertainment is trading between its rising key averages, which signal neutral price action in the near-term.

LGF

(Source: Thinkorswim)

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

Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

Lions Gate Entertainment Options

41.82%

26%

24%

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

Put IV Skew

Call IV Skew

December Options

Average

Average

January Options

Average

Average

As of today, there is an average demand from call and put buyers or sellers, all neutral over the next two months. To summarize, investors are buying a small 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 Lions Gate Entertainment’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for Lions Gate Entertainment 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)

-100.00%

139.39%

453.21%

2800.00%

Revenue Growth (Y-O-Y)

-29.46%

-26.92%

N/A

130.20%

Earnings Reaction

0.46%

-0.87%

2.74%

-0.60%

Lions Gate Entertainment has seen increasing earnings and mixed revenue figures over the last four quarters. From these numbers, the markets have been happy with Lions Gate Entertainment’s recent earnings announcements.

P = Excellent Relative Performance Versus Peers and Sector

How has Lions Gate Entertainment stock done relative to its peers, Disney (NYSE:DIS), Twenty-First Century Fox (NASDAQ:FOXA), Viacom (NASDAQ:VIAB), and sector?

Lions Gate Entertainment

Disney

Twenty-First Century Fox

Viacom

Sector

Year-to-Date Return

101.20%

40.57%

50.89%

51.55%

62.05%

Lions Gate Entertainment has been a relative performance leader, year-to-date.

Conclusion

Lions Gate Entertainment is involved in motion picture production and distribution as well as television programming and syndication. The company may see even higher profits than expected from The Hunger Games sequel, Catching Fire. The stock has been surging higher in recent years and is now trading near all time highs. Over the last four quarters, earnings have been rising while revenues have been mixed, which has left investors in the company happy about recent earnings announcements. Relative to its peers and sector, Lions Gate Entertainment has been a year-to-date performance leader. Look for Lions Gate Entertainment to OUTPERFORM.

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