Will Amazon Head Higher After Recent Headlines?
With shares of Amazon (NASDAQ:AMZN) trading around $293, 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’s Sunday delivery program is now available in 15 additional cities beyond the New York and Los Angeles metro areas where the program originally launched in November, the online retailer announced Thursday. Amazon Prime members who order an eligible item as late as Friday can receive the package — delivered by the U.S. Postal Service — as soon as Sunday under the two-day shipping benefit that comes with the $99 annual Prime membership.
T = Technicals on the Stock Chart Are Weak
Amazon stock has been pulling back in recent times. The stock is currently trading near lows for the year 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 below its rising key averages, which signals neutral to bearish price action in the near-term.
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 |
32.47% |
16% |
14% |
What does this mean? This means that investors or traders are buying a small amount of call and put options contracts, as compared to the last 30 and 90 trading days.
|
Put IV Skew |
Call IV Skew |
|
| June Options |
Steep |
Average |
| July Options |
Steep |
Average |
As of Thursday, 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 small 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?
|
2014 Q1 |
2013 Q4 |
2013 Q3 |
2013 Q2 |
|
| Earnings Growth (Y-O-Y) |
27.78% |
137.32% |
-85% |
-150% |
| Revenue Growth (Y-O-Y) |
22.84% |
20.31% |
19.23% |
22.36% |
| Earnings Reaction |
-9.88% |
-10.99% |
9.38% |
2.83% |
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), and Overstock (NASDAQ:OSTK) — and sector?
|
Amazon |
eBay |
Barnes & Noble |
Overstock |
Sector |
|
| Year-to-Date Return |
-26.10% |
-6.9% |
7.89% |
-50.7% |
-17.95% |
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’s Sunday delivery program is now available in 15 additional cities. The stock has been pulling back in recent times and is currently trading near lows for the year. 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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