Does Amazon Have the Potential for New Highs?

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.

Amazon says it is hiring more than 2,500 full-time workers at its order fulfillment centers around the U.S. Amazon plans to announce on Wednesday that the jobs are available in Chester and Petersburg, Virginia; Coffeyville, Kansas; Columbia, South Carolina; Dupont, Washington; and Murfreesboro, Tennessee. The world’s largest online retailer says that last year it hired more than 20,000 people at its fulfillment centers, with more than half starting out as seasonal workers. Amazon says the median income for people working at its order-fulfillment facilities is higher than at traditional retailers. The Seattle-based company had 117,300 full-time and part-time employees at the end of 2013, according to a regulatory filing.

T = Technicals on the Stock Chart Are Mixed

Amazon stock has been exploding to the upside in the last several years. However, the stock may need time to consolidate. 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 signals neutral 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

31.87%

16%

14%

What does this mean? This means that investors or traders are buying a minimal 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 Wednesday, there is average demand from call and put buyers or sellers, all neutral over the next two months. To summarize, investors are buying a minimal 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 had mixed feelings about 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), and Overstock (NASDAQ:OSTK) — and sector?

Amazon

eBay

Barnes & Noble

Overstock

Sector

Year-to-Date Return

-12.7%

-0.39%

5.02%

-39.5%

-1.69%

Amazon has been an average relative 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 says it is hiring more than 2,500 full-time workers at its order fulfillment centers around the U.S. 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. However, investors have had mixed feelings about recent earnings announcements. 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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