Is Lowe’s a Buy Near All-Time Highs?

With shares of Lowe’s (NYSE:LOW) trading around $40, is LOW 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

Lowe’s operates as a home improvement retailer. It offers products for maintenance, repair, remodeling, and home decorating. The company serves homeowners and renters consisting of do-it-yourself and do-it-for-me as well as commercial business customers comprising of construction trade, and maintenance and repair organizations. After the housing bubble burst that led to the Financial Crisis in 2008, home and business owners are opting for home and business improvement over purchasing new properties. This trend is poised to continue as there are still a large amount of home and commercial locations readily available for consumers across the nation.

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T = Technicals on the Stock Chart are Strong

Lowe’s stock has witnessed a powerful move towards higher prices over the last couple of years. This move has taken the stock to all-time high prices where it is now consolidating a bit. 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, Lowe’s is trading slightly above its rising key averages which signal neutral to bullish price action in the near-term.

LOW

(Source: Thinkorswim)

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

Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

Lowe’s Options

28.67%

63%

62%

What does this mean? This means that investors or traders are buying a significant amount of call and put options contracts, as compared to the last 30 and 90 trading days.

Put IV Skew

Call IV Skew

July Options

Flat

Average

August 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 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.