Can Amazon See New Highs this Year?

With shares of Amazon (NASDAQ:AMZN) trading around $295, 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 focus 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. It also offers 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 the relatively low prices offered.

Amazon is still dominating the e-commerce world, as recent data from the Securities and Exchange Commission seen by The Wall Street Journal shows that brick-and-mortar retailers are still having a difficult time making headway in online retail. The SEC asked a group of major retailers including Target (NYSE:TGT) and Staples (NASDAQ:SPLS) about their online performance, and data showed that Amazon still sells more online than its next 12 competitors combined.

T = Technicals on the Stock Chart Are Strong

Amazon stock has been flying higher over the past few years. The stock is now pulling back from all-time high prices. 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.

AMZN

Source: Thinkorswim

Taking a look at the implied volatility 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

26.57%

76%

75%

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

October Options

Flat

Average

November Options

Flat

Average

As of Monday, there is 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.

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?

2013 Q2

2013 Q1

2012 Q4

2012 Q3

Earnings Growth (Y-O-Y)

-150.00%

-35.71%

-43.66%

-528.57%

Revenue Growth (Y-O-Y)

22.36%

21.88%

22.01%

26.94%

Earnings Reaction

2.83%

-7.24%

4.76%

6.87%

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

P = Excellent 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

17.99%

3.67%

-10.80%

98.25%

14.79%

Amazon has been a relative performance leader, 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 worldwide. The company continues to dominate the e-commerce competition and looks poised to continue. The stock has been flying higher but is currently pulling back from all-time high prices. Over the last four quarters, investors in the company have been pleased, as revenues have been rising while earnings have been declining. Relative to its peers and sector, Amazon has been a year-to-date performance leader. Look for Amazon to OUTPERFORM.

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