Will Sony Stock Rise With the Help Of Its PlayStation 4?

With shares of Sony (NYSE:SNE) trading around $21, 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 bring 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.

Sony is also setting some high expectations for the gaming industry. Sony has said that it expects to sell 5 million PlayStation 4 devices by March, according to a report by the Wall Street Journal. The Journal called the goal “ambitious,” but also said that the lower price tag on the device when compared with the PlayStation 3 and the competing Xbox One from Microsoft (NASDAQ:MSFT) could help boost sales. Sony's new console will be available in North America on November 15, just in time for holiday shopping.

T = Technicals on the Stock Chart Are Strong

Sony stock has seen its fair share of struggles over the last few years. The stock has moved much higher this year and looks poised to break to new highs 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, Sony is trading above its rising key averages, which signal neutral to bullish 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	33.67%	23%	21%

What does this mean? This means that investors or traders are buying a small 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 small 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 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 Q2	2013 Q1	2012 Q4	2012 Q3
Earnings Growth (Y-O-Y)	82.50%	125.35%	93.93%	43.45%
Revenue Growth (Y-O-Y)	-8.96%	-5.41%	-4.07%	0.48%
Earnings Reaction	4.37%	0.78%	-4.36%	0.68%

Sony has seen improving earnings and decreasing revenue figures over the last four quarters. From these numbers, the markets have been relatively happy 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), Dolby Laboratories (NYSE:DLB), and sector?

	Sony	Microsoft	Canon	Dolby Laboratories	Sector
Year-to-Date Return	93.75%	25.68%	-18.20%	18.24%	19.78%

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

Conclusion

Sony is a provider of innovative technology products to consumers and companies worldwide. The company has set high expectations for its PlayStation 4 as it plans to sell 5 million consoles by March of next year. The stock has struggled in recent years but is now getting ready to test highs for the year. Over the last four quarters, earnings have improved while revenues have declined, however, investors have been pleased with the company. Relative to its peers and sector, Sony has been a year-to-date performance leader. Look for Sony to continue to OUTPERFORM.