With shares of Yahoo (NASDAQ:YHOO) trading around $36, is YHOO 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
Yahoo is a technology company that provides search, content, and communication tools on the Web and on mobile devices worldwide. It operates Yahoo.com, which offers Yahoo Search, Yahoo News, Yahoo Sports, Yahoo Finance, Yahoo Entertainment and Lifestyles, and Yahoo Video. Being such a large content provider, Yahoo is able to reach a significant amount of consumers across the globe. As the Internet attracts an increasing number of participants, look for Yahoo to continue to be a major player.
Yahoo isn’t the only Yahoo company acquiring other companies. Yahoo Japan plans to purchase eAccess, a mobile Internet service provider, from SoftBank, a telecommunications company and Yahoo Japan’s parent company. Yahoo Japan is paying 324 billion yen or about $3.2 billion to acquire the company. It is the first step for Yahoo Japan in launching its own mobile service, dubbed Y! Mobile. Yahoo Japan is a joint venture between the Yahoo, Inc. and SoftBank. Yahoo, Inc. has a 35 percent interest in Yahoo Japan. SoftBank has a 42 percent interest.
T = Technicals on the Stock Chart Are Strong
Yahoo stock has been trending higher in the last several months. 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, Yahoo is trading between its rising key averages which signal neutral price action in the near-term.
(Source: Thinkorswim)
Taking a look at the implied volatility (red) and implied volatility skew levels of Yahoo options may help determine if investors are bullish, neutral, or bearish.
|
Implied Volatility (IV) |
30-Day IV Percentile |
90-Day IV Percentile |
|
| Yahoo options |
38.26% |
76% |
74% |
What does this mean? This means that investors or traders are buying a very significant amount of call and put options contracts, as compared to the last 30 and 90 trading days.
|
Put IV Skew |
Call IV Skew |
|
| April Options |
Average |
Average |
| May 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 very significant 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 Yahoo’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for Yahoo 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) |
31.43% |
-6.67% |
66.67% |
52.17% |
| Revenue Growth (Y-O-Y) |
-5.94% |
0.33% |
-6.78% |
-6.62% |
| Earnings Reaction |
-8.71% |
-0.86% |
10.34% |
-0.37% |
Yahoo has seen increasing earnings and decreasing revenue figures over the last four quarters. From these numbers, the markets have been pleased with Yahoo’s recent earnings announcements.
P = Weak Relative Performance Versus Peers and Sector
How has Yahoo stock done relative to its peers, Google (NASDAQ:GOOG), AOL (NYSE:AOL), Microsoft (NASDAQ:MSFT), and sector?
|
Yahoo |
|
AOL |
Microsoft |
Sector |
|
| Year-to-Date Return |
-10.90% |
0.69% |
-8.11% |
8.18% |
-1.53% |
Yahoo has been a poor relative performer, year-to-date.
Conclusion
Yahoo is an Internet bellwether that provides a multitude of services to consumers and companies worldwide. Yahoo Japan plans to purchase eAccess. The stock has been moving higher in recent quarters and looks set to continue. Over the last four quarters, earnings have been rising and revenues have been decreasing, which has left investors pleased about recent earnings announcements. Relative to its peers and sector, Yahoo has been a poor year-to-date performer. WAIT AND SEE what Yahoo does next.
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