Will Amazon Continue to See Its Stock Rise?

Amazon Fresh

With shares of Amazon (NASDAQ:AMZN) trading around $300, 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 a leader in the Internet commerce space, so look for continued rising profits as more consumers and companies opt for this method of shopping and selling. However, Amazon’s second quarter earnings missed analyst expectations as the e-commerce giant has been doing some big spending lately.

The Washington Post (NYSE:WPO) is being bought by Amazon founder Jeffery Bezos for $250 million. In a statement announcing the sale, Washington Post chairman and CEO Donald E. Graham said, “I, along with Katharine Weymouth and our board of directors, decided to sell only after years of familiar newspaper-industry challenges made us wonder if there might be another owner who would be better for the Post.”

T = Technicals on the Stock Chart are Strong

Amazon stock has been surging higher over the last several years. The stock is now trading near all-time high prices where it may spend some time. 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 signal neutral to bullish 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

25.25%

6%

5%

What does this mean? This means that investors or traders are buying a very small 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 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 very small 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?

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), Overstock (NASDAQ:OSTK), and sector?

Amazon

eBay

Barnes & Noble

Overstock

Sector

Year-to-Date Return

19.93%

5.12%

18.62%

124.70%

18.04%

Amazon has been a relative performance leader, year-to-date.

Conclusion

Amazon is one of the largest Internet commerce companies in the world that aims to serve the needs of consumers, companies, and entrepreneurs worldwide. The stock has been on an explosive move higher and is now trading near all-time high prices. Over the last four quarters, investors in the company have been pleased as earnings have been decreasing while revenue figures have been rising. Relative to its peers and sector, Amazon has been a year-to-date performance leader. Look for Amazon to continue to OUTPERFORM.

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