Can Sony Be the Stock It Once Was?

With shares of Sony (NYSE:SNE) trading around $15, is SNE 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

Sony is involved in the electronics, games, entertainment, and financial businesses. The company operates in several different segments: Consumer Products Services, Professional Device Solutions, Movie, Music, Finance, Mobile, and Other. Through its segments, Sony is able to provide a wide range of products and services. These products include televisions, cameras, personal computers, game consoles, navigation systems, audio and video equipment, software, phones, and media platforms. The company brings new technologies to the hands of the average player as well as professional users. Look for Sony to continue to be a top choice for avid technology adopters worldwide.

Around the time of last year’s Electronic Entertainment Expo, excitement about new gaming consoles from Sony and Microsoft (NASDAQ:MSFT) was tempered by skepticism that people will keep paying big bucks for new consoles. Sony has quieted those concerns by selling over 7 million Playstation 4 consoles, claiming a significant lead over the 5 million in sales for Microsoft’s XBox One. Perhaps that gap explains why Microsoft is spending this year’s show still trying to convince hardcore gamers to buy consoles while Sony is branching out. On Monday, Sony said it would bring Playstation TV to the U.S. this year and start an open testing period of Playstation Now, its cloud gaming service, at the end of July.

Both services have been out there in some form already—TV is already available in Japan, and Now is currently in a private testing period—but the company hasn’t worked out the specifics for either yet. The still-developing products offer a look at how Sony thinks about the future of the video-game console business. Playstation TV is the closest that Sony has come to competing with Apple (NASDAQ:AAPL) TV or Amazon’s (NASDAQ:AMZN) Fire TV, albeit with a heavier focus on sophisticated gaming. The device resembles other Internet TV boxes in size and price ($99 alone or $139 with a controller, memory card, and a game). It can be used to stream games from a Playstation 4 to another television in the same household. Sony put an emphasis on more family-friendly games that will run on the device, which will also run a number of yet-to-be-announced media applications. Playstation TV will also have older games available for download and will be able to stream games from Playstation Now.

T = Technicals on the Stock Chart are Weak

Sony stock has seen its fair share of struggles over the past few years. The stock is currently pulling back 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, Sony is trading below its rising key averages which signal 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 Sony options may help determine if investors are bullish, neutral, or bearish.

What does this mean? This means that investors or traders are buying a very small amount of call and put options contracts, as compared to the last 30 and 90 trading days.

As of today, 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 small 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 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 Sony’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for Sony look like and more importantly, how did the markets like these numbers?

Sony has seen increasing earnings and revenue figures over the last four quarters. From these numbers, the markets have been pleased with Sony’s recent earnings announcements.

P = Weak Relative Performance Versus Peers and Sector

How has Sony stock done relative to its peers, Microsoft (NASDAQ:MSFT), Canon (NYSE:CAJ), Dolby Laboratories (NYSE:DLB), and sector?

Sony has been a poor relative performer, year-to-date.

Conclusion

Sony is a provider of innovative technology products to consumers and companies worldwide. The company said it would bring Playstation TV to the U.S. this year and start an open testing period of Playstation Now. The stock has seen its fair share of struggles over the past few years and is currently pulling back. Over the last four quarters, earnings and revenues have been on the rise, which has left investors pleased. Relative to its peers and sector, Sony has been a poor year-to-date performer. WAIT AND SEE what Sony does this quarter.

Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

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More from Wall St. Cheat Sheet:

• Game Over: Why Is Sony Scrapping the PSP?
• See Sony’s Big Announcements From E3 This Year
• Despite Improved Sales, Sony Continues to Disappoint Investors