Is Amazon Poised to Head Higher?

With shares of Amazon (NASDAQ:AMZN) trading around $359, is AMZN 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

Amazon serves its customers through its retail websites and focuses on selection, price, and convenience. The company also manufactures and sells Kindle devices. Amazon offers programs that enable sellers to sell their products on the company’s websites, including the sellers’ own branded websites, and fulfill orders through them. Amazon also provides platforms that allow authors, musicians, filmmakers, app developers, and others to publish and sell content. Online commerce has been on the rise because of the convenience, efficiency, and relatively low prices offered.

Amazon on Friday unveiled a subscription service that allows customers to read as much as they choose from its library of more than 600,000 e-books. Subscribers to the Kindle Unlimited service, which costs $9.99 per month, can read the e-books on Amazon’s Kindle reader or on any device that supports the Kindle app. Customers can choose from books including The Hunger Games, Life of Pi, and Diary of a Wimpy Kid. Subscribers also have access to thousands of audio books. Amazon’s service competes with others in the market including Oyster, which charges $9.95 per month for unlimited access to more than 500,000 titles.

T = Technicals on the Stock Chart Are Strong

Amazon stock has been moving higher in recent times. The stock is currently surging higher and looks poised 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, Amazon is trading above its rising key averages, which signals 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 Amazon options may help determine if investors are bullish, neutral, or bearish.

Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

Amazon options

36.84%

80%

78%

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

August Options

Flat

Average

September Options

Flat

Average

As of Friday, 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 Amazon’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for Amazon look like and more importantly, how did the markets like these numbers?

2014 Q1

2013 Q4

2013 Q3

2013 Q2

Earnings Growth (Y-O-Y)

27.78%

137.32%

-85%

-150%

Revenue Growth (Y-O-Y)

22.84%

20.31%

19.23%

22.36%

Earnings Reaction

-9.88%

-10.99%

9.38%

2.83%

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

P = Average Relative Performance Versus Peers and Sector

How has Amazon stock done relative to its peers – eBay (NASDAQ:EBAY), Barnes & Noble (NYSE:BKS), and Overstock (NASDAQ:OSTK) — and sector?

Amazon

eBay

Barnes & Noble

Overstock

Sector

Year-to-Date Return

-11.61%

-6.99%

45.54%

-54.27%

-5.83%

Amazon has been an average performer, year-to-date.

Conclusion

Amazon is one of the largest Internet commerce companies in the world, and it aims to serve the needs of consumers, companies, and entrepreneurs around the globe. The company on Friday unveiled a subscription service that allows customers to read as much as they choose from its library of more than 600,000 e-books. The stock has been moving higher in recent times and looks poised to continue. Over the last four quarters, earnings and revenues have been rising, which has left investors pleased. Relative to its peers and sector, Amazon has been an average performer year-to-date. Look for Amazon to OUTPERFORM.

Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

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