Is Yahoo A Buy At Current Prices?

With shares of Yahoo (NASDAQ:YHOO) trading around $38, is YHOO 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

Yahoo is a technology company that provides search, content, and communication tools on the web and on mobile devices worldwide. It operates Yahoo.com, which offers Yahoo Search, Yahoo News, Yahoo Sports, Yahoo Finance, Yahoo Entertainment and Lifestyles, and Yahoo Video. Being such a large content provider, Yahoo is able to reach a significant amount of consumers across the globe. As the internet attracts an increasing number of participants, look for Yahoo to continue to be a major player.

Yahoo ran to its highest perch since January 2006 earlier, after bouncing sharply off its rising 10-day moving average earlier this week. Despite YHOO flexing its technical muscle, puts have gained in popularity today and are trading at two times the average intraday volume. The most sought-after position among this group of option players is the stock’s January 2014 34-strike put.

T = Technicals on the Stock Chart are Strong

Yahoo stock has been exploding to the upside in the last several months. The stock is currently trading near all time highs and looks set to continue. 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, Yahoo 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 Yahoo options may help determine if investors are bullish, neutral, or bearish.

	Implied Volatility (IV)	30-Day IV Percentile	90-Day IV Percentile
Yahoo options	31.64%	30%	28%

What does this mean? This means that investors or traders are buying a minimal 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	Flat	Average
January 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 minimal 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 Yahoo’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for Yahoo 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)	-6.67%	66.67%	52.17%	-2.15%
Revenue Growth (Y-O-Y)	0.33%	-6.78%	-6.62%	1.64%
Earnings Reaction	-0.86%	10.34%	-0.37%	-3.00%

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

P = Excellent Relative Performance Versus Peers and Sector

How has Yahoo stock done relative to its peers, Google (NASDAQ:GOOG), AOL (NYSE:AOL), Microsoft (NASDAQ:MSFT), and sector?

	Yahoo	Google	AOL	Microsoft	Sector
Year-to-Date Return	95.28%	51.16%	50.05%	44.25%	61.18%

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

Conclusion

Yahoo is an Internet bellwether that provides a multitude of services to consumers and companies worldwide. The company ran to its highest perch since January 2006 earlier, after bouncing sharply off its rising 10-day moving average earlier this week. The stock has been moving higher in recent quarters and is now trading near all time highs. Over the last four quarters, earnings and revenues have been mixed, which has pleased investors about earnings announcements. Relative to its peers and sector, Yahoo has been a year-to-date performance leader. Look for Yahoo to OUTPERFORM.