Is Amazon a Buy At All Time Highs?

With shares of Amazon (NASDAQ:AMZN) trading around $361, 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.

Shares of Amazon soared as the company’s earnings report declared an earnings per share value in line with estimates, but revenues that beat out expectations. Particularly exciting was the company’s guidance for the fourth quarter, which includes the all important holiday season, where the company is forecasting revenues of between $-500 and $500 million and sales of between 10 and 25 percent greater than last year. The company’s shares are currently trading at up over 8 percent on the news.

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 trading at all time high prices and looks set to continue this path. 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

31.53%

33%

31%

What does this mean? This means that investors or traders are buying a significant amount of call and put options contracts as compared to the last 30 and 90 trading days.

Put IV Skew

Call IV Skew

November Options

Flat

Average

December 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 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 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 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

8.92%*

2.83%

-7.24%

4.76%

Amazon has seen decreasing earnings and rising revenue figures over the last four quarters. From these numbers, 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), Barnes & Noble (NYSE:BKS), Overstock (NASDAQ:OSTK), and sector?

Amazon

eBay

Barnes & Noble

Overstock

Sector

Year-to-Date Return

43.50%

0.75%

-3.71%

74.91%

45.93%

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 worldwide. A recent earnings release has investors very excited about the company. The stock has been flying higher in recent years and is now trading at all time high prices. Over the last four quarters, earnings have been decreasing while revenues have been increasing, which has pleased investors in the company. Relative to its peers and sector, Amazon has been an average year-to-date performer. Look for Amazon to OUTPERFORM.

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