Amazon misses on revenue, earnings, consensus, does worse than last year, and rockets up almost 9% after hours with a hat trick, a big improvement in operational income and margins.
But wait, I thought revenue growth was the only real metric for evaluating an aggressive growth stock with almost negligible book value relative to price. Oh, well, if they miss on revenue, let's find some metric, any measure that they improved dramatically. Do fundamentals matter when it comes to Amazon?
Let's check in with the sell-side fundamental analysts. According to Nasdaq.com, 23 of 30 analysts have it as a buy. It must have good fundamentals. Finviz.com has the analyst target at 294. Recent analyst upgrdes have raised the target to 290, 300 and 310.
Like all aggressive growth stocks, Facebook and LinkedIn come to mind; price targets are based not on current fundamental metrics but on projected growth way out into the future. Usually the dreams about the future carry price wildly higher. But once that growth stalls, price begins to drop, and Apple comes to mind. But not Amazon. It is in a class all by itself.
Perhaps if we check further, we might find some confidence in the wild expectations folks have for a rather mundane retail company that people like to use because it is so convenient. It's a great company, people love their service, and product lines and maybe some day Amazon will make nice big fat profits.
Meanwhile it's growing like gangbusters, or should we say was growing? Now the operational profits are growing instead of revenue. Does that mean Amazon becomes more like Apple and Google and less like Facebook and LinkedIn? In which case does it ever drop like Apple?
At this writing in the afterhours market on Tuesday, price is at 284, up 24. If the 12-month target is 310, as some recent analyst believes, you are only looking at an implied return of 9%. It is hardly worth buying at these prices even if you believe the analysts� expectations for this stock. The StockpickerUSA.com system, which has a value bias, gives Amazon only one star and rates it a sell.
Let's check the big institutional owners of this stock as of September on nasdaq.com. You will find that plenty of the largest and most respected institutions holding very large positions and increasing their holdings. Obviously, the portfolio managers agree with the sell-side analysts. But things may change if revenue growth falters and Amazon cannot justify the enormous forward PE of 153, which is out there on the moon.
Now we are ready to look at the chart for some answers. The chart is saying that Amazon is overbought in an uptrend and the upper Keltner band is at 282 and the lower band is at 252 on the daily chart, but 225 on the weekly chart.
My guess is that the price move up hits resistance here at 284 as it did last time and by the end of February is testing the lower daily Keltner band. The previous high at 265 will provide the first support when price tests the downside. Prior to earnings, that is what price was doing and what it will do again..
(Nothing in this article recommends Amazon as a buy or sell. Fundamental analysts and technical charts can be wrong. Do your own due diligence and check with a professional financial adviser before acting on the statements in this article.)