Saturday, February 28, 2015

Can Google Continue to Trend Higher?

With shares of Google (NASDAQ:GOOG) trading around $1045, 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 agreed to pay $17 million to 37 states this week for evading cookie-blocking controls in Apple's (NASDAQ:AAPL) Safari browser, but industry experts suggest that the effect the settlement will have on the privacy debate is more significant that than the money penalty itself.

T = Technicals on the Stock Chart Are Strong

Google stock has has been exploding to the upside in the past several years. The stock is currently trading near all-time highs 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, Google is trading above its rising key averages, which signal neutral to bullish price action in the near-term.


(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




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

December Options



January Options



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 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 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 Q3

2013 Q2

2013 Q1

2012 Q4

Earnings Growth (Y-O-Y)





Revenue Growth (Y-O-Y)





Earnings Reaction





Google has seen increasing earnings and revenue figures over the last four quarters. From these numbers, the markets have had conflicting feelings about Google’s recent earnings announcements.

P = Average 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?






Year-to-Date Return






Google has been an average relative performer, year-to-date.


Google is an Internet giant that provides valuable search and advertising services to a growing user base worldwide. The company agreed to pay $17 million to 37 states this week for evading cookie-blocking controls in Apple's Safari browser. The stock has been exploding higher in recent years and is currently trading near all time high prices. Over the last four quarters, earnings and revenues have been increasing. However, investors have had conflicting feelings about recent earnings announcements. Relative to its strong peers and sector, Google has been an average year-to-date performer. Look for Google to OUTPERFORM.

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