Can Amazon Continue to Meet Its High Expectations?

With shares of Amazon (NASDAQ:AMZN) trading around $348, 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.

According to insider sources cited by Re/Code, Amazon is preparing to launch its own device for delivering Internet video to television. Amazon’s as-yet-unnamed Web TV box would offer services similar to Apple (NASDAQ:AAPL) TV and devices sold by Roku. Per Re/Code’s sources, Amazon is planning on launching the device in March, around the same time that Apple’s next-generation Apple TV device is rumored to be released, based on the timeline of previous upgrades. Amazon’s move into the digital media player hardware market follows the company’s similar moves into the e-book reader and tablet markets after it began offering media for those devices. Amazon has long offered streaming Internet video content through its Amazon Instant Video service, and its upcoming Web TV box would be a natural complement to this service.

As noted by Re/Code, Amazon’s entry into the digital media player market is not surprising, especially considering that the company previously announced a Web TV box last year before putting the plans on hold for unknown reasons. Amazon’s upcoming device will use an offshoot of Google’s (NASDAQ:GOOG) Android operating system similar to how the company used a version of the operating system for its Kindle Fire tablets, according to Re/Code’s sources.

T = Technicals on the Stock Chart Are Mixed

Amazon stock has been exploding to the upside in the last several years. However, the stock is currently trading sideways and may need time to stabilize before heading higher. 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 between its rising key averages which signal neutral price action in the near-term.

CMCSA

(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

25.44%

40%

38%

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

March Options

Average

Average

April Options

Average

Average

As of today, there is an average demand from call and put buyers or sellers, all neutral over the next two months. To summarize, investors are buying a significant amount of call and put option contracts and are leaning neutral 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

-12.60%

0.19%

20.07%

-39.60%

2.91%

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

Conclusion

With shares of Amazon (NASDAQ:AMZN) trading around $348, 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.

According to insider sources cited by Re/Code, Amazon is preparing to launch its own device for delivering Internet video to television. Amazon’s as-yet-unnamed Web TV box would offer services similar to Apple (NASDAQ:AAPL) TV and devices sold by Roku. Per Re/Code’s sources, Amazon is planning on launching the device in March, around the same time that Apple’s next-generation Apple TV device is rumored to be released, based on the timeline of previous upgrades. Amazon’s move into the digital media player hardware market follows the company’s similar moves into the e-book reader and tablet markets after it began offering media for those devices. Amazon has long offered streaming Internet video content through its Amazon Instant Video service, and its upcoming Web TV box would be a natural complement to this service. As noted by Recode, Amazon’s entry into the digital media player market is not surprising, especially considering that the company previously announced a Web TV box last year before putting the plans on hold for unknown reasons. Amazon’s upcoming device will use an offshoot of Google’s (NASDAQ:GOOG) Android operating system similar to how the company used a version of the operating system for its Kindle Fire tablets, according to Re/Code’s sources.

T = Technicals on the Stock Chart are Mixed

Amazon stock has been exploding to the upside in the last several years. However, the stock is currently trading sideways and may need time to stabilize before heading higher. 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 between its rising key averages which signal neutral price action in the near-term.

CMCSA

(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

25.44%

40%

38%

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

March Options

Average

Average

April Options

Average

Average

As of today, there is an average demand from call and put buyers or sellers, all neutral over the next two months. To summarize, investors are buying a significant amount of call and put option contracts and are leaning neutral 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

-12.60%

0.19%

20.07%

-39.60%

2.91%

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 is preparing to launch its own device for delivering Internet video to television. The stock has been flying higher in recent years but 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.

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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.

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