Is Amazon Primed For A Lower Price?

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 |  About: Amazon.com, Inc. (AMZN), Includes: SPY
by: Abba's Aces

Summary

The valuations based on next year's earnings estimates and growth expectations say the stock is expensive at these levels.

There is no dividend to speak of to keep you protected from a market-wide pullback.

The technical of how the stock is trading depict the story of a lower price.

The last time I wrote about Amazon.com (NASDAQ:AMZN) I stated, "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" Since the last article it popped 5% but then hit a wall in the form of first quarter earnings and has lost 9.26% overall versus the 1.65% gain the S&P 500 (NYSEARCA:SPY) posted. I ended up eating crow on that purchase. Amazon serves consumers through its retail websites and focuses on selection, price and convenience.

On April 24, 2014 the company reported first-quarter earnings of $0.23 per share, which missed the consensus of analysts' estimates by a penny. In the past year the company's stock is up 11.73% and is losing to the S&P 500, which has gained 16.17% in the same time frame. I already purchased a batch of the stock back in early December for my growth portfolio and am down 24.01% 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 450.5, 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 85.89 is currently expensively priced for the future in terms of the right here, right now. The 1-year PEG ratio (2.31), 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 195.25%. The company has great near-term future earnings growth potential with a projected EPS growth rate of 195.25%. In addition, the company has great long-term future earnings growth potential with a projected EPS growth rate of 46.56%. Below is a comparison table of the fundamental metrics for the company for when I wrote all articles pertaining to the company.

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

08May14

288.32

450.5

85.89

3.36

50

2.31

195.25

Click to enlarge

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 0.9%, 3.2% and 3.9%, 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

08May14

0

0

0.9

3.2

3.9

Click to enlarge

Technicals

Click to enlarge

Looking first at the relative strength index chart [RSI] at the top, I see the stock muddling near oversold territory with a current value of 32.1. 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 ($288.32), I'm looking at $313.48 to act as resistance and $278.65 to act as support for a risk/reward ratio which plays out to be -3.35% to 8.73%.

Recent News

  1. After the market closed on 24Apr14 the company reported first quarter earnings of $0.23 per share on revenue of $19.74 billion versus expectations of $0.24 per share and revenue of $19.42 billion.
  2. The company reported 26% increase in sales in North America and an 18% increase for the international side of the business. Operating margins have decreased to 1.1%, a drop of 40 basis points.
  3. The stock held its own after reporting earnings but tumbled the next morning as there were several price target cuts and downgrades from analysts. Wells Fargo, RBC, and Deutsche all cut their price targets but Evercore and Credit Suisse reiterated their price targets.

Conclusion

In order to cut costs Amazon is trying to cut ties with FedEx (NYSE:FDX) and UPS (NYSE:UPS). Delivery costs are one of the biggest and most rapidly increasing costs for the company. Fundamentally the company is expensively valued based on future earnings estimates and based on next year's earnings growth potential. Financially, there isn't a dividend to speak of right now and the financial efficiency ratios aren't great. On a technical basis I believe the stock may have a little downside to it in the short term. Due to the bearish technicals, no dividend, and expensive valuation based on earnings growth estimates, I will not be pulling the trigger here 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!

Disclosure: I am long AMZN, SPY. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.