With shares of Alcatel-Lucent (NYSE:ALU) trading around $1, is ALU an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:
C = Catalyst for a Stock’s Movement
Alcatel-Lucent provides networking and communications technology, products, and services to service providers, enterprises, and governments worldwide. The world is increasingly becoming more interconnected so Alcatel-Lucent is participating in an industry that is seeing significant demand. However, can the company execute its business well and compete with the other juggernauts of the industry?
T = Technicals on the Stock Chart are Weak
Alcatel-Lucent has been seeing a downtrend since highs established in 2001. Any decent run has been met with selling, how long will this continue? Evaluating a price trend can be efficiently done with the use of key moving averages. In fact, the key simple moving averages can provide insight into the trend and strength of the trend. What are the key moving averages? The 50-day, 100-day, and 200-day simple moving averages. Alcatel-Lucent is trading around its swinging key averages which is signaling a neutral price trend in the near future.
A relatively simple way to gain perspective into investor sentiment is through the use of the options market. More specifically, taking a look at the implied volatility and implied volatility skew levels of Alcatel-Lucent options may help determine if investors are bullish, neutral, or bearish. The implied volatility of Alcatel-Lucent options is at 57.67 percent today which coincides with a 30th percentile over the last 30 trading days and 25th percentile over the last 90 trading days. 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.
The implied volatility skew of April and May put and call options is at about average. So as of today, there is an average demand from call and put buyers or average supply of call and put sellers, all neutral over the next two months. Investors are buying a small amount of call and put option contracts and are leaning neutral over the next two months.
E = Earnings Are Decreasing Quarter-Over-Quarter
Alcatel-Lucent’s may be compelled to rise if the company posts increasing earnings and revenue growth rates. What do the last four quarterly earnings and revenue growth figures for Alcatel-Lucent look like? The last four quarterly earnings growth (Y-O-Y) rates have all been poor, negative to say the least, while the last four revenue growth (Y-O-Y) rates have all been: 0.14, -10.86, -20.04, and -23.25 percent. Alcatel-Lucent has posted poor earnings growth but advancing revenue growth during the last four quarters.
How did the street like these numbers? The last four quarterly earnings announcement reactions help gauge investor sentiment on Alcatel-Lucent’s stock. The last four quarters have seen next trading session returns of -7.55, -9.9, -2.83, and -17.95 percent. The street has not been very pleased with Alcatel-Lucent’s earnings reports.
E = Poor Relative Performance Versus Peers and Sector
How has Alcatel-Lucent stock done relative to its peers and sector? Year-to-date, the stock is returning 0.36 percent while its competitors, Cisco (NASDAQ:CSCO), Ericsson (NASDAQ:ERIC), Nokia (NYSE:NOK), and sector are returning 2.38, 22.25, -17.88, and 1.86 percent respectively. Alcatel-Lucent has been a low relative performer year-to-date.
Conclusion
Alcatel-Lucent is part of a sector that will continue to see demand for many years. The stock has been in a consistent downtrend since highs were established in 2001 on decreasing earnings and revenue growth. Relative to its peers and sector, the stock has been one of the relative underperformers. STAY WAY from Alcatel-Lucent stock for now.
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