Can Amazon Continue Its Uptrend?

With shares of Amazon (NASDAQ:AMZN) trading around $403, 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. 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.

In the retail world, Mike Duke isn’t this year’s Santa Claus, nor is Gregg Steinhafel. Rather, the red suit belongs to Amazon’s very own Jeff Bezos, and it is all thanks to his little elves at the company’s toy factories. The holiday shopping season has always been a retail gold mine for big-name companies like Wal-Mart Stores (NYSE:WMT) and Target (NYSE:TGT), but this year, the competition has been especially fierce because the brick-and-mortar retailers are suffering struggling sales on account of new competition presented by e-commerce giants like Amazon. Wal-Mart and Target have worked to combat this new rival by shoring up their Internet offerings and marketing enticing online deals, but a new report from Bloomberg shows that despite their best efforts, it still isn’t enough, because Amazon has a more impressive online availability of toys than Wal-Mart or Target do.

T = Technicals on the Stock Chart Are Strong

Amazon stock has been exploding to the upside in the last several years. The stock is currently surging higher and looks poised to continue. 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

30.71%

90%

88%

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

January Options

Flat

Average

February 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 significant 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 Mixed 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 Q3

2013 Q2

2013 Q1

2012 Q4

Earnings Growth (Y-O-Y)

-85.00%

-150.00%

-35.71%

-43.66%

Revenue Growth (Y-O-Y)

19.23%

22.36%

21.88%

22.01%

Earnings Reaction

9.38%

2.83%

-7.24%

4.76%

Amazon has seen decreasing earnings and increasing 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

60.94%

7.44%

-2.72%

111.30%

45.24%

Amazon has been a relative performance leader, 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 holiday shopping season has always been a retail gold mine for big-name companies like Wal-Mart Stores and Target, but this year, the competition has been especially fierce because the brick-and-mortar retailers are suffering struggling sales on account of new competition presented by e-commerce giants like Amazon. The stock has been flying higher in recent years and is currently surging higher. Over the last four quarters, earnings have been decreasing while revenues have been increasing, which has generally pleased investors in the company. Relative to its peers and sector, Amazon has been a relative performance leader year-to-date performer. Look for Amazon to OUTPERFORM.

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