Is Sony a Buy at Current Prices?

With shares of Sony (NYSE:SNE) trading around $18, 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 your average player as well as professional users. Look for Sony to continue to be a top choice for avid technology adopters worldwide.

Sales of Sony's PlayStation 4 recently reached 2.1 million units worldwide, temporarily giving it bragging rights over Microsoft's (NASDAQ: MSFT) Xbox. Given that the PS4 just launched and that the holiday season is critical to console sales, the news has to be among the best that the battered Japanese consumer electronics company has issued in a very long time.

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 trading sideways and looks set to continue this path. 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 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 Sony options may help determine if investors are bullish, neutral, or bearish.

	Implied Volatility (IV)	30-Day IV Percentile	90-Day IV Percentile
Sony options	30.62%	43%	41%

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

	Put IV Skew	Call IV Skew
December Options	Steep	Average
January Options	Steep	Average

As of Tuesday, there is 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 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 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?

	2013 Q3	2013 Q2	2013 Q1	2012 Q4
Earnings Growth (Y-O-Y)	22.71%	82.5%	125.35%	93.93%
Revenue Growth (Y-O-Y)	10.64%	-8.96%	-5.41%	-4.07%
Earnings Reaction	-11.17%	4.37%	0.78%	-4.36%

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

P = Excellent Relative Performance Versus Peers and Sector

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

	Sony	Microsoft	Canon	Dolby Laboratories	Sector
Year-to-Date Return	64.2%	43.21%	-17.2%	22.78%	29.24%

Sony has been a relative performance leader, year-to-date.

Conclusion

Sony is a provider of innovative technology products to consumers and companies worldwide. Sales of Sony's PlayStation 4 recently reached 2.1 million units worldwide, temporarily giving it bragging rights over Microsoft. The stock has struggled in recent years and is now trading sideways. Over the last four quarters, earnings have increased while revenues are improving, leaving investors pleased with the company. Relative to its peers and sector, Sony has been a year-to-date performance leader. Look for Sony to OUTPERFORM.