Can Honda Travel a Path of Rising Prices?

With shares of Honda Motor (NYSE:HMC) trading around $38, is HMC 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

Honda Motor develops, produces, and manufactures a variety of motor products ranging from small general-purpose engines and scooters to specialty sports cars. The company's business segments are the motorcycle business, automobile business, financial services business, and power product and other businesses. Honda conducts its operations in Japan and worldwide, including North America, Europe, and Asia.

Honda Motor may be floating $2.75 billion worth of U.S. dollar-denominated bonds in three parts as soon as Friday, sources told The Detroit News. Honda's finance division could release $1.75 billion of three-year debt, made up of $1 billion of fixed-rate notes yielding 65 basis points more than similar-maturity Treasuries, as well as $750 million of floating-rate securities paying 50 basis points more than the three-month London interbank offered rate, the sources said.

T = Technicals on the Stock Chart are Mixed

Honda Motor stock has not made significant progress in recent months. The stock is currently trading near mid-prices for the year and looks like it may need time to establish value. 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, Honda Motor is trading between its tangled key averages, which signal neutral price action in the near-term.

(Source: Thinkorswim)

Taking a look at the implied volatility (red) and implied volatility skew levels of Honda Motor options may help determine if investors are bullish, neutral, or bearish.

	Implied Volatility (IV)	30-Day IV Percentile	90-Day IV Percentile
Honda Motor Options	33.16%	90%	88%

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.

	Top 10 Insurance Stocks To Own Right Now Put IV Skew	Call IV Skew
October Options	Steep	Average
November Options	Steep	Average

As of today, there is an 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 very 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 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 Honda Motor’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for Honda Motor 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)	-25.10%	-7.58%	45.84%	34.21%
Revenue Growth (Y-O-Y)	-6.29%	-0.31%	12.10%	18.78%
Earnings Reaction	-0.74%	N/A	N/A	N/A

Honda Motor has seen mixed earnings and revenue figures over the last four quarters. From these numbers, the markets have not been pleased with Honda Motor’s recent earnings announcements.

P = Weak Relative Performance Versus Peers and Sector

How has Honda Motor stock done relative to its peers, General Motors (NYSE:GM), Toyota Motor (NYSE:TM), Ford Motor (NYSE:TM), and sector?

	Honda Motor	General Motors	Toyota Motor	Ford Motor	Sector
Year-to-Date Return	3.87%	23.79%	37.36%	31.81%	29.34%

Honda Motor has been a poor relative performer, year-to-date.

Conclusion

Honda provides vehicles and related products to consumers and companies around the world. The company has plans to issue new debt as it early as Friday. The stock has struggled to make significant progress and is now trading near mid-prices for the year. Over the last four quarters, earnings and revenues have been mixed which has not pleased investors. Relative to its peers and sector, Honda has been a year-to-date performance leader. WAIT AND SEE what Honda does this coming quarter.