Will the PlayStation 4 Send Sony Higher?

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 bring 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.

Sony shares are down 6 percent in premarket trading on Thursday as the company posted third-quarter losses in both its electronics and movie businesses. A weak yen and increased smartphone sales helped Sony offset the losses from its movie studio. Sony posted an operating profit of $151 million and a net loss of $197 million. The company cut its full-year net profit forecast by 40 percent, blaming the poor performance of the film White House Down. The Verge reports that Sony is still confident about sales of the upcoming PlayStation 4 console. Sony expects to sell 5 million units by March.

T = Technicals on the Stock Chart Are Weak

Sony stock has seen its fair share of struggles over the last few years.  The stock is currently trading at lows for the quarter. 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

30.99%

0%

0%

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

November Options

Steep

Average

December 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 small 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 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 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
-13.29%*

4.37%

0.78%

-4.36%

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

* As of this writing

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

49.11%

33.02%

-19.60%

21.51%

22.01%

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 company has set high expectations for its PlayStation 4 as it plans to sell 5 million consoles by March of next year. The stock has struggled in recent years and is now trading at lows for the quarter. Over the last four quarters, earnings have improved while revenues have declined, however, investors have been pleased with the company. Relative to its peers and sector, Sony has been a year-to-date performance leader. WAIT AND SEE what Sony does next.

Using a solid investing framework such as this can help improve your stock-picking skills. Don’t waste another minute — click here and get our CHEAT SHEET stock picks now.