Is Amazon Poised to Surge Higher?

With shares of Amazon (NASDAQ:AMZN) trading around $335, 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 has secured an exclusive deal with HBO to offer older seasons of HBO programming through its Prime Instant Video streaming service. Prime Instant Video will soon offer the entirety of popular HBO series like The Sopranos and Six Feet Under as well as episodes of new series, including Veep and Girls but not Game of Thrones, three years after they air. While some might question whether this older programming is really all that valuable, HBO has created so many hugely critically acclaimed series that binge watchers who currently don’t have access to shows like The Sopranos will be on cloud nine once they get the complete HBO series Amazon will start serving up on May 21.

This is a crucial deal for Amazon, which wants its streaming service to better compete with Netflix (NASDAQ:NFLX). Netflix doesn’t have the rights to any HBO programming, which means it’s missing out on a ton of popular shows that Amazon now has. Premium cable channels like HBO, Starz, and Showtime have been reluctant to license their shows to on-demand services as they still want people to sign up for premium cable subscriptions in order to get their content. But traditional cable is an aging model, and more people are turning to much less expensive streaming services to get their TV fix. HBO has its own streaming service called HBO Go, which will be launched on Amazon’s Fire TV set-top box as a part of the deal. This is the first time that HBO has licensed its programming to an outside online streaming service.

“HBO has produced some of the most groundbreaking, beloved and award-winning shows in television history, with more than 115 Emmys amongst the assortment of shows coming to Prime members next month,” said Brad Beale, Director of Content Acquisition for Amazon in the companies’ press release. “HBO original content is some of the most-popular across Amazon Instant Video — our customers love watching these shows. Now Prime members can enjoy a collection of great HBO shows on an unlimited basis, at no additional cost to their Prime membership.”

T = Technicals on the Stock Chart are Mixed

Amazon stock has been pulling back in recent times. The stock is currently trading sideways and may need time to stabilize. 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 below its rising key averages which signal neutral to bearish price action in the near-term.

AMZN

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

44.67%

73%

70%

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

May Options

Steep

Average

June 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 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 Q4

2013 Q3

2013 Q2

2013 Q1

Earnings Growth (Y-O-Y)

137.32%

-85%

-150%

-35.71%

Revenue Growth (Y-O-Y)

20.31%

19.23%

22.36%

21.88%

Earnings Reaction

-10.99%

9.38%

2.83%

-7.24%

Amazon has seen rising 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), Overstock (NASDAQ:OSTK), and sector?

Amazon

eBay

Barnes & Noble

Overstock

Sector

Year-to-Date Return

-16.20%

0.44%

11.91%

-43.60%

-10.86%

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 has secured an exclusive deal with HBO to offer older seasons of HBO programming through its Prime Instant Video streaming service. The stock has been pulling back in recent times and is currently trading sideways. Over the last four quarters, earnings and revenues have been rising, which has pleased investors in the company. Relative to its peers and sector, Amazon has been an average performer year-to-date. WAIT AND SEE what Amazon does this quarter.

Using a solid investing framework such as this can help improve your stock-picking skills. Don’t waste another minute — click here and get our CHEAT SHEET stock picks now.

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