Is Sony a Solid Investment?

With shares of Sony (NYSE:SNE) trading around $17, is SNE 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

Sony is involved in the electronics, games, entertainment, and financial businesses. The company operates in several different segments: Consumer Products Services, Professional Device Solutions, Movie, Music, Finance, Mobile, and Other. Through its segments, Sony is able to provide a wide range of products and services. These products include televisions, cameras, personal computers, game consoles, navigation systems, audio and video equipment, software, phones, and media platforms. The company brings new technologies to the hands of your average player as well as professional users. Look for Sony to continue to be a top choice for avid technology adopters worldwide.

When Breaking Bad was in its final season it was a non-stop topic amongst fans. The new spinoff, Better Call Saul, from Sony’s entertainment arm Sony Pictures Television, is coming to viewers via Netflix (NASDAQ:NFLX), according to a PR Newswire release. For Europe and Latin America, the first season will be streaming just after it airs in the U.S. in 2014, while the U.S. and Canada will have to wait till the first season finale on AMC (NASDAQ:AMCX) for it to hit Netflix. Sony’s deal with Netflix makes the spinoff’s new home on Netflix’s steaming platform, after it appears on AMC, a shiny chunk of gold in Netflix’s pocket. Better Call Saul follows Walter White’s lawyer in the years before the two met. Better Call Saul stars Bob Odenkirk, and was both co-created and produced by Vince Gilligan — who also created Breaking Bad.

T = Technicals on the Stock Chart Are Mixed

Sony stock has seen its fair share of struggles over the past few years. The stock is currently surging higher and looks poised 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, Sony is trading below its rising key averages, which signal neutral to bearish price action in the near-term.

SNE

(Source: Thinkorswim)

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

Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

Sony options

32.12%

63%

60%

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

Put IV Skew

Call IV Skew

January Options

Steep

Average

February 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 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 Sony’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for Sony 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)

22.71%

82.50%

125.35%

93.93%

Revenue Growth (Y-O-Y)

10.64%

-8.96%

-5.41%

-4.07%

Earnings Reaction

-11.17%

4.37%

0.78%

-4.36%

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

P = Excellent Relative Performance Versus Peers and Sector

How has Sony stock done relative to its peers, Microsoft (NASDAQ:MSFT), Canon (NYSE:CAJ), Dolby Laboratories (NYSE:DLB), and sector?

Sony

Microsoft

Canon

Dolby Laboratories

Sector

Year-to-Date Return

58.75%

37.20%

-18.10%

30.58%

28.10%

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

Conclusion

Sony is a provider of innovative technology products to consumers and companies worldwide. The new spinoff, Better Call Saul, from Sony’s entertainment arm Sony Pictures Television, is coming to viewers via Netflix. The stock has struggled in recent years, but is now surging higher. Over the last four quarters, earnings have increased while revenues are improving, leaving investors pleased with the company. Relative to its peers and sector, Sony has been a year-to-date performance leader. Look for Sony to OUTPERFORM.

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