Is Amazon Poised to Head Higher?

With shares of Amazon (NASDAQ:AMZN) trading around $318, 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.

Ordering and returning items through Amazon has become even speedier using a new system of lockers placed in urban centers. The system will allow customers to return unwanted merchandise purchased from the online retailer without having to ship the items back to Amazon. The company has been installing the lockers in public locations that receive a lot of traffic, such as grocery stores, convenience stores, and garages in major metropolitan areas. While the service makes returns easier for urban customers, it also addresses a major concern of online retailers: paying for shipping in both directions, especially given that more than a third of online purchases are eventually returned.

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 pulling back and may need time to consolidate 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 below its rising key averages, which signals 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

45.55%

96%

93%

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 Monday, there is 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 increasing 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), and Overstock (NASDAQ:OSTK) — and sector?

Amazon

eBay

Barnes & Noble

Overstock

Sector

Year-to-Date Return

-20.80%

-3.2%

15.59%

-40.3%

-11.17%

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. Ordering and returning items through Amazon has become even speedier using a new system of lockers placed in urban centers. The stock has been exploding to the upside in the past several years but is currently pulling back. 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. Look for Amazon to OUTPERFORM.

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.

More From Wall St. Cheat Sheet: