With shares of Amazon.com Inc. (NASDAQ:AMZN) trading at around $248.23, 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:
C = Catalyst for the Stock's Movement
Reading this article requires a little imagination. If you lack imagination, don't worry, here's some inspiration…
Great song, but this isn't going the political or religious route. We're going a much different route. Imagine you're trapped inside a Men in Black movie and a neuralyzer has been used on you. For those not familiar with the Men in Black franchise, this means that your recent memories (and sometimes not so recent memories) have been erased. With that in mind, imagine that you have never heard of Amazon. The only thing you now know is that this is a company with weak margins, poor valuation, high sensitivity to market corrections, and it has difficulty showing profits. Would you feel comfortable investing in this company?
NEW! Discover a new stock idea each week for less than the cost of 1 trade. CLICK HERE for your Weekly Stock Cheat Sheets NOW!Passionate Amazon longs are likely angrier than a pack of unfed and caged wolves right now. Then again, Amazon longs have seen this argument so many times that they're probably immune to it.
On the bullish side, Amazon has shown consistent revenue improvements on an annual basis, it has superb customer service, and analysts love the stock (18 Buy, 12 Hold, 1 Sell). Amazon Instant Video also has potential. It's cheaper than Netflix (NASDAQ:NFLX), but Netflix offers more content and better quality.
Amazon.com's traffic has steadily increased over the past two years. On the other hand, the past three months has seen a 22 percent decline in time-on-site and a 20 percent increase in bounce rate. These aren't necessarily bad signs, but they're not good signs.
According to Glassdoor.com, employees rate Amazon a 3.4 of 5, which is very high. A somewhat impressive 66 percent of employees would recommend the company to a friend, and an impressive 87 percent of employees approve of CEO Jeff Bezos. It's evident that the company culture is strong, which is a great sign as it increases productivity.
Now let's take a look at some comparative numbers. The chart below compares fundamentals for Amazon, Netflix, and eBay Inc. (NASDAQ:EBAY). Amazon has a market cap of $112.59 billion, Netflix has a market cap of $11.94 billion, and eBay has a market cap of $67.93 billion.
| AMZN | NFLX | EBAY | |
| Trailing P/E | N/A | 515.01 | 25.40 |
| Forward P/E | 70.28 | 69.06 | 16.25 |
| Profit Margin | -0.14% | 0.65% | 18.68% |
| ROE | -1.11% | 3.31% | 13.64% |
| Operating Cash Flow | $4.25 Billion | -$8.51 Million | $4.24 Billion |
| Dividend Yield | N/A | N/A | N/A |
| Short Position | 1.80% | N/A | 1.30% |
Let's take a look at some more important numbers prior to forming an opinion on this stock.
E = Equity to Debt Ratio Is Normal
The debt-to-equity ratio for Amazon is close to the industry average of 0.36.
| Debt-To-Equity | Cash | Long-Term Debt | |
| AMZN | 0.36 | $7.90 Billion | $3.04 Billion |
| NFLX | 0.62 | $1.03 Billion | $500.00 Million |
| EBAY | 0.21 | $9.40 Billion | $4.52 Billion |
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T = Technicals Have Weakened
Amazon has been a big winner over a three-year time frame, but the year-to-date performance has been subpar.
Top 10 Retail Stocks To Buy Right Now1 Month | Year-To-Date | 1 Year | 3 Year | |
| AMZN | -6.96% | -1.17% | 6.92% | 80.85% |
| NFLX | 12.53% | 130.00% | 165.80% | 115.40% |
| EBAY | -3.36% | 2.75% | 27.74% | 120.40% |
At $248.23, Amazon is trading below all its averages.
| 50-Day SMA | 264.34 |
| 100-Day SMA | 263.03 |
| 200-Day SMA | 251.73 |
E = Earnings Have Been Weak
Earnings have declined over the past two years. However, revenue growth has been steady. This is impressive considering many companies throughout the broader market have seen revenue declines in 2012.
| 2008 | 2009 | 2010 | 2011 | 2012 | |
| Revenue ($)in billions | 19.17 | 24.51 | 34.20 | 48.08 | 61.09 |
| Diluted EPS ($) | 1.49 | 2.04 | 2.53 | 1.37 | -0.09 |
When we look at the previous quarter on a year-over-year basis, we see an increase in revenue and a decline in earnings. Both revenue and earnings have declined on a sequential basis.
| 3/2012 | 6/2012 | 9/2012 | 12/2012 | 3/2013 | |
| Revenue ($)in billions | 13.18 | 12.83 | 13.81 | 21.27 | 16.07 |
| Diluted EPS ($) | 0.28 | 0.01 | -0.60 | 0.21 | 0.18 |
Now let's take a look at the next page for the Trends and Conclusion. Is this stock an OUTPERFORM, a WAIT AND SEE, or a STAY AWAY?
T = Trends Do Not Support the Industry
For companies like Amazon, it's all about the consumer. That's bad news for Amazon. The best shot Amazon has at maintaining its current growth rate is through innovation, and it's certainly doing a good job in that area. However, economic headwinds are nearing hurricane force. They include the potential for massive federal spending cuts, higher taxes, a continuously weakening Europe, and a weak U.S. consumer.
NEW! Discover a new stock idea each week for less than the cost of 1 trade. CLICK HERE for your Weekly Stock Cheat Sheets NOW!Conclusion
Amazon is a great company with a superb leader, but it's simply a dangerous investment in this economic environment. The stock has lost momentum in a strong market. What would happen in a weak market? Savvy investors certainly wouldn't choose to hold onto expensive technology stocks over their safer investments.
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