Is Amazon Stock a Buy?

With shares of Amazon (NASDAQ:AMZN) trading around $312, 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 enables 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 relatively low prices offered.

Amazon may be able to sell e-books for its popular Kindle e-readers for even less, now that Apple (NASDAQ:AAPL) has lost a trial accusing the tech giant of colluding with publishers to raise the price of e-books. Also, Amazon is a leader in the Internet commerce space, so look for them to continue to see 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.

T = Technicals on the Stock Chart are Strong

Amazon stock has been on a surging higher over the last few years. The stock is now trading near all-time highs, 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? They are 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

26.78%

3%

1%

What does this mean? This means that investors or traders are buying a very minimal 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 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 minimal 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 what that means for Amazon’s stock.

E = Earnings Are Increasing Quarter-Over-Quarter

Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. In addition, the last four quarterly earnings announcement reactions can 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

2.86%*

-7.24%

4.76%

6.87%

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

* As of this writing

P = Excellent Relative Performance Versus Peers and Sector

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

Amazon

eBay

Apple

Barnes & Noble

Sector

Year-to-Date Return

22.59%

1.63%

-17.40%

20.08%

8.43%

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

Conclusion

Amazon is an Internet commerce giant serving the needs of consumers, companies, and entrepreneurs worldwide. A recent earnings report has left investors feeling optimistic about the company. The stock has been steadily rising over the last several years, and is now trading near all-time highs. Over the last four quarters, earnings have been decreasing, while revenues have been rising, which has led to pleased investors. 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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