With shares of Pandora (NYSE:P) trading around $15, is P 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
Pandora provides Internet radio services in the United States. The company allows listeners to create up to 100 personalized stations to access unlimited hours of free music and comedy, as well as offers Pandora One, a paid subscription service to listeners. It is also involved in the sale of displays, audio advertising, and video advertising products to advertisers for delivery on computer, mobile, and other connected device platforms. Consumers constantly search for new methods of entertainment and audio has been a staple in this area. As consumers enjoy music and comedy through platforms like Pandora at an increasing rate, look for the company to see rising profits fueled by its growing audience.
T = Technicals on the Stock Chart are Strong
Pandora stock is soaring higher from lows established last year on a strong bid by market participants. The stock is now consolidating near highs for the year and shows no immediate signs of stopping there this 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, Pandora 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 Pandora options may help determine if investors are bullish, neutral, or bearish.
| Implied Volatility (IV) | 30-Day IV Percentile | 90-Day IV Percentile | |
| Pandora Options | 67.36% | 83% | 84% |
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 | |
| June Options | Flat | Average |
| July 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 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 Pandora’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for Pandora look like and more importantly, how did the markets like these numbers?
| 2012 Q4 | 2012 Q3 | 2012 Q2 | 2012 Q1 | |
| Earnings Growth (Y-O-Y) | -119.57% | 100.00% | 25.00% | 80.33% |
| Revenue Growth (Y-O-Y) | 53.81% | 59.98% | 51.22% | 58.27% |
| Earnings Reaction | 17.56% | -17.46% | 14.28% | 12.29% |
Pandora has seen increasing earnings and revenue figures over most of the last four quarters. From these figures, the markets have been very happy with Pandora’s recent earnings announcements.
P = Excellent Relative Performance Versus Peers and Sector
How has Pandora stock done relative to its peers, Sirius XM (NASDAQ:SIRI), CBS (NYSE:CBS), Google (NASDAQ:GOOG), and sector?
| Pandora | Sirius XM | CBS | | Sector | |
| Year-to-Date Return | 56.97% | 17.47% | 23.65% | 22.90% | 23.55% |
Pandora has been a relative performance leader, year-to-date.
Conclusion
Pandora provides an outlet of audio entertainment to a growing audience in the United States. The stock has been seeing an explosive move higher over the last several months and is now consolidating but doesn’t seem to be wanting to stop there. Earnings and revenue figures have grown over the last four quarters which has kept investors really upbeat. Relative to its peers and sector, Pandora has led in year-to-date performance. Look for Pandora stock to continue to OUTPERFORM.
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