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Summary

  • The stock is in oversold territory on a technical basis.
  • The company has excellent near and long-term earnings growth potential.
  • The stock is still expensively valued based on next year's earnings.

The last time I wrote about Amazon.com (NASDAQ:AMZN), I stated:

"…I'm not going to be buying right now in the midst of the market turbulence that is taking place." Since the time the article was published, the stock dropped 16.86% versus the 3.52% gain the S&P 500 (NYSEARCA:SPY) posted. Amazon serves consumers through its retail websites and focuses on selection, price and convenience.

On January 30, 2014, the company reported fourth quarter earnings of $0.51 per share, which missed the consensus of analysts' estimates by $0.18. In the past year, the company's stock is up 24.38% and is beating the S&P 500, which has gained 18.78% in the same time frame. I already purchased a batch of the stock back in early December for my growth portfolio and am down 18.6% on the batch. With all this in mind, I'd like to take a moment to evaluate the stock on a fundamental, financial and technical basis to see if right now is a good time to purchase more of the stock for my portfolio.

Fundamentals

The company currently trades at a trailing 12-month P/E ratio of 547.86, which is expensively priced, but I mainly like to purchase a stock based on where the company is going in the future as opposed to what it has done in the past. On that note, the 1-year forward-looking P/E ratio of 74.89 is currently expensively priced for the future in terms of the right here, right now. The 1-year PEG ratio (4.58), which measures the ratio of the price you're currently paying for the trailing 12-month earnings on the stock while dividing it by the earnings growth of the company for a specified amount of time (I like looking at a 1-year horizon), tells me that the company is expensively priced based on a 1-year EPS growth rate of 119.73%. The company has great near-term future earnings growth potential with a projected EPS growth rate of 119.73%. In addition, the company has great long-term future earnings growth potential with a projected EPS growth rate of 49.79%. Below is a comparison table of the fundamentals metrics for the company for when I wrote all articles pertaining to it.

Article Date

Price ($)

TTM P/E

Fwd P/E

EPS Next YR ($)

Target Price ($)

PEG

EPS next YR (%)

12Dec13

382.19

1364.96

142.87

2.67

40

5.14

265.44

07Apr14

317.76

547.86

74.89

4.24

63

4.58

119.73

Financials

On a financial basis, the things I look for are the dividend payouts, return on assets, equity and investment. The company does not sport a dividend to speak of but is sporting return on assets, equity and investment values of 0.8%, 3% and 4.5%, respectively, which are all respectable values. In this particular instance, I will forego the dividend aspect of the financials because the stock is in my growth portfolio, and in the growth portfolio a stock does not have to have a dividend. Below is a comparison table of the financial metrics for when I wrote all articles pertaining to the company.

Article Date

Yield (%)

Payout TTM (%)

ROA (%)

ROE (%)

ROI (%)

12Dec13

0

0

0.4

1.5

2.1

07Apr14

0

0

0.8

3.0

4.5

Technicals

(click to enlarge)

Looking first at the relative strength index chart [RSI] at the top, I see the stock is in oversold territory with a value of 24.4. I will look at the moving average convergence-divergence [MACD] chart next. I see that the black line is below the red line with the divergence bars decreasing in height, indicating bearish momentum. As for the stock price itself ($317.76), I'm looking at the 200-day simple moving average (currently $340.20) to act as resistance and $297.89 to act as support for a risk/reward ratio which plays out to be -6.25% to 7.06%.

Recent News

  1. The company released a new device which will make weekly shopping easier. The Amazon Dash as it's called, will allow users to add shopping items to their accounts on AmazonFresh, the company's same-day delivery service.
  2. The company also released a new set-top box called Fire TV. From this set-top box the consumer will be able to stream viewing content in addition to playing thousands of android games.
  3. Amazon Studios gears up for release of quite a bit of media content. The company has ordered a second season of Alpha House, pilots for four primetimes slots, and two kids series for Amazon Prime, all of which may end up debuting before the end of 2014.

Conclusion

Amazon is like a fastball getting pitched to Miguel Cabrera, it's just going to get clobbered in any sort of market downturn. Amazon belongs to the cohort of high flying growth names which will be the first set of stocks which funds will sell in the midst of turbulence. This is evidenced in the technical analysis section I performed; the stock is already in oversold territory just in the past two weeks. Fundamentally, the company is expensively valued on next year's earnings and on next year's earnings growth potential while having great near and long-term earnings growth potential. Financially, the return ratios have improved since the last time I took a look at the stock. Technically, the stock is in oversold territory and can be due for a bounce. Due to the oversold technicals, improving financial ratios, and excellent near and long-term earnings growth potential I will be pulling the trigger on this name right now.

Disclaimer: This article is meant to serve as a journal for myself as to the rationale of why I bought/sold this stock when I look back on it in the future. These are only my personal opinions and you should do your own homework. Only you are responsible for what you trade and happy investing!

Source: Can Amazon Deliver After Being Oversold?