Amazon for Gamblers

Thanks to a reader for pointing this chart out - it will an interesting report in Seattle tomorrow for sure.

On the pro side for this company - we have the thesis that pooring Americans, when not walking the aisles of Walmart (WMT), will save money by shopping at Amazon.com (AMZN) - no shipping costs (for orders over $25) and no gas usage by said consumer to actually get to the store.

On the con side -well that was the thesis for eBay (EBAY) as well, and that did not work out so well. And it was the thesis for Overstock.com (OSTK). Er, not so well there either - but that company has a lot of specific situations onto itself. Also, on the con side are hints of slowdown on internet usage and click throughs via the Google (GOOG) report (poorer Americans even having to force themselves not to click on fun things to buy off the internet).



The reason this stock is interesting is, despite the pullback in shares it STILL trades at 44x forward estimates AND the chart. You know we love gaps. But the farther back the gaps are the less likely they will get filled. However, let's peek at Amazon's - first near term,

.... and then longer term:


In the near term you see March 2008 lows of $61ish. In the longer term you see a massive "gap" in the chart between $45 and the mid $50s area. Must it fill? No. Could it? Yes. Especially if a disappointing quarter sends this stock down below that $61 level of support post earnings. As much as the business model of Amazon.com is in many ways superior, it's still at its core a retailer - and 44x forward estimates for a retailer is ahem... rich. I know, I know - they are unique, they deserve the premium, blah blah and blah. That's the same thing people were telling me about Whole Foods (WFMI) a year ago when it traded at massive multiples of other supermarkets. How did that work out?


Behind almost every bad stock the past year is one constant - the American consumer. I'm not calling for this massive breakdown (at least with money on the table), but if something goes amiss in this earnings and that $61 level is broken, watch for potential fireworks (aka hedge fund feeding frenzy).

Disclosure: No positions, but short the American consumer in the general sense