Does Google Stock Stand to Benefit from Recent News?

With shares of Google (NASDAQ:GOOG) trading around $866, 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 focused 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.

Reuters reports that BlackBerry (NASDAQ:BBRY) is in talks with Google, Cisco Systems (NASDAQ:CSCO), and SAP (NYSE:SAP) about selling itself as a whole or in parts as BlackBerry's takeover bid from Fairfax Financial Holdings is looking even less certain. Of particular interest to buyers is BlackBerry's patent portfolio and server network. Expressions of interest from potential buyers are due by early next week. Fairfax's $4.7 billion bid for BlackBerry has come under question due to financing concerns.

T = Technicals on the Stock Chart Are Mixed

Google stock has been coasting to the upside in recent years. However, the stock is currently trading sideways as it looks digests gains from a recent run. 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 between its 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 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	27.46%	96%	93%

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
October Options	Flat	Average
November Options	Flat	Average

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 very 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 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 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 Q2	2013 Q1	2012 Q4	2012 Q3
Earnings Growth (Y-O-Y)	-5.53%	13.60%	17.06%	-21.61%
Revenue Growth (Y-O-Y)	15.52%	31.23%	24.87%	45.07%
Earnings Reaction	-1.55%	4.43%	5.49%	-1.90%

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

P = Weak 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?

	Google	Yahoo!	Microsoft	Baidu	Sector
Year-to-Date Return	22.51%	72.11%	25.42%	58.43%	42.64%

In a strong sector, Google has been a weak relative performer, year-to-date.

Conclusion

Google is an Internet giant that provides valuable search and advertising services to a growing user base worldwide. It is being reported that BlackBerry is in talks with Google as well as other tech giants about selling all or part of its business. The stock has been trending higher in recent years and is now consolidating near highs for the year. Over the last four quarters, earnings have been mixed while revenues have been rising, which has produced conflicting feelings among investors. Relative to its peers and sector, Google has been a weak year-to-date performer. WAIT AND SEE if Google can break above its consolidation range.