Will Amazon Resume Its Uptrend?

With shares of Amazon (NASDAQ:AMZN) trading around $282, 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. It also offers 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 the relatively low prices offered.

Amazon is still dominating the e-commerce world as recent data from the Securities and Exchange Commission seen by the Wall Street Journal shows that brick and mortar retailers are still having a difficult time making headway in online retail. The SEC asked a group of major retailers including Target (NYSE:TGT) and Staples (NASDAQ:SPLS) about their online performance, and data showed that Amazon still sells more online than its next twelve competitors combined.

T = Technicals on the Stock Chart are Mixed

Amazon stock has been surging higher over the last several years. The stock is currently pulling back from this year’s highs so it may need time to stabilize. 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 key averages which signal 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

27.30%

73%

71%

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

September Options

Flat

Average

October 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 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 Q2

2013 Q1

2012 Q4

2012 Q3

Earnings Growth (Y-O-Y)

-150.00%

-35.71%

-43.66%

-528.57%

Revenue Growth (Y-O-Y)

22.36%

21.88%

22.01%

26.94%

Earnings Reaction

2.83%

-7.24%

4.76%

6.87%

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.

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

12.28%

-0.31%

-8.62%

103.40%

10.43%

Amazon has been a relative performance leader, year-to-date.

Conclusion

Amazon is one of the largest Internet commerce companies in the world that aims to serve the needs of consumers, companies, and entrepreneurs worldwide. The company continues to dominate the e-commerce competition and looks poised to continue. The stock is currently pulling-back from this year’s highs so it may still need some time to stabilize. Over the last four quarters, earnings have been decreasing while revenues have been increasing which has resulted in pleased investors. Relative to its peers and sector, Amazon has been a year-to-date performance leader. WAIT AND SEE what Amazon does at these critical price levels.

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