With shares of Yahoo (NASDAQ:YHOO) trading around $33, 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 CEO Marissa Mayer said she apologized and did “feel really badly” for being late to a dinner with advertisers last week in Cannes, France, in her first public comments since facing criticism over the incident. Mayer said in an interview that she didn’t mean to slight attendees at the dinner hosted by Interpublic Group of Cos. at Cannes Lions, an advertising festival that drew Google (NASDAQ:GOOG)(NASDAQ:GOOGL), AOL (NYSE:AOL), Microsoft (NASDAQ:MSFT), and others. She said she was pleased overall with the more than 200 meetings that Yahoo had at Cannes.
T = Technicals on the Stock Chart Are Weak
Yahoo stock has been pulling back over the last couple of quarters. The stock may need time to stabilize as it trades near lows for the year. 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 below its rising key averages, which signals neutral to bearish 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 |
34.48% |
70% |
68% |
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 |
|
| July Options |
Steep |
Average |
| August Options |
Steep |
Average |
As of Wednesday, 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 very 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 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?
|
2014 Q1 |
2013 Q4 |
2013 Q3 |
2013 Q2 |
|
| Earnings Growth (Y-O-Y) |
-17.14% |
31.43% |
-6.67% |
66.67% |
| Revenue Growth (Y-O-Y) |
-0.61% |
-5.94% |
0.33% |
-6.78% |
| Earnings Reaction |
6.25% |
-8.71% |
-0.86% |
10.34% |
Yahoo has seen mixed earnings and decreasing revenue figures over the last four quarters. From these numbers, the markets have had mixed feelings about Yahoo’s recent earnings announcements.
P = Average Relative Performance Versus Peers and Sector
How has Yahoo stock done relative to its peers – Google (NASDAQ:GOOG), AOL (NYSE:AOL), and Microsoft (NASDAQ:MSFT) – and sector?
|
Yahoo |
|
AOL |
Microsoft |
Sector |
|
| Year-to-Date Return |
-17.5% |
2.79% |
-21.7% |
16.37% |
-4.01% |
Yahoo has been an average performer, year-to-date.
Conclusion
Yahoo is an Internet bellwether that provides a multitude of services to consumers and companies worldwide. CEO Marissa Mayer said she apologized and did “feel really badly” for being late to a dinner with advertisers last week in Cannes, France. The stock has been pulling back over the last couple of quarters and is currently trading near lows for the year. Over the last four quarters, earnings have been mixed and revenues have been decreasing, which has produced mixed feelings among investors. Relative to its peers and sector, Yahoo has been an average year-to-date performer. WAIT AND SEE what Yahoo does next.
Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:
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