With shares of AOL (NYSE:AOL) trading around $46, is AOL 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
AOL is a global Web services company with a range of brands and offerings that intrigue a global audience. The company’s business spans online content, products, and services which it offers to consumers, publishers and advertisers. Its business operations are focused on AOL Properties and Third Party Network. It offers a range of display advertising, including text and banner advertising, mobile, video, and rich media advertising, sponsorship of content offerings, and local and classified advertising. Through its broad network, AOL is able to offer content to a large user base.
AOL released fourth-quarter 2013 results on Thursday. “2013 was AOL’s most successful year in the last decade, and we accomplished our goal of industry level growth at scale for AOL,” said Tim Armstrong, AOL chairman and CEO. “AOL’s exceptionally talented team continues to execute against our strategy and our results show meaningful progress in the most important areas of media and technology. AOL plans to invest in our market leading strategies in 2014, while we continue to grow the company.”
T = Technicals on the Stock Chart Are Strong
AOL stock has been surging higher in recent times. However, 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, AOL is trading above its rising key averages, which signals 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 AOL options may help determine if investors are bullish, neutral, or bearish.
|
Implied Volatility (IV) |
30-Day IV Percentile |
90-Day IV Percentile |
|
| AOL options |
46.6% |
40% |
38% |
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 Thursday, there is 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 AOL’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for AOL 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) |
4.88% |
-90.91% |
96.56% |
45.45% |
| Revenue Growth (Y-O-Y) |
13.26% |
5.57% |
1.92% |
1.68% |
| Earnings Reaction |
-1.41%* |
8.52% |
1.4% |
-8.88% |
*As of this writing.
AOL has seen increasing earnings and revenue figures over the last four quarters. From these numbers, the markets have been pleased with AOL’s recent earnings announcements.
P = Excellent Relative Performance Versus Peers and Sector
How has AOL stock done relative to its peers – Google (NASDAQ:GOOG), Yahoo (NASDAQ:YHOO), and Microsoft (NASDAQ:MSFT) — and sector?
|
AOL |
|
Yahoo |
Microsoft |
Sector |
|
| Year-to-Date Return |
0.75% |
2.76% |
-9.64% |
-3.31% |
-1.36% |
AOL has been a relative performance leader, year to date.
Conclusion
AOL provides informational content and entertainment to a growing user base around the world. The company on Thursday reported fourth-quarter earnings that left investors satisfied. The stock has been surging higher in recent times but is now trading sideways. Over the last four quarters, earnings and revenue figures have been rising. Relative to its peers and sector, AOL has been a year-to-date performance leader. Look for AOL to OUTPERFORM.
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