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Amazing Web Services

Amazon.com (AMZN) is one of the hottest stocks in the market. It opened 2015 at $312 and was recently quoted at $536, posting a 71% gain on the year. So far.

What’s pushing the stock higher is Amazon’s web service (AWS) division, which does cloud services, is very profitable. Sales in AWS rose 49% last qtr but what investors really liked is the operating profit margin was 17%.

In addition to AWS being a new profit source, we are in a stock market that is really in love with a handful of growth stocks and is pushing them higher — no matter what the valuation. With AMZN its tough to figure how much the company would be making right now if it wouldn’t plowing profits back into the business to grow. I owned AMZN before, and sold when management said it would do take this rout, and now I’m left hanging. Looking for a chance to get back in.

One Year Chart

AMZN_2015_Q3What’s good about this one-year chart is 2015 profit estimates just increased from $0.34 to $1.60. 2016’s almost doubled from $2.50 to $4.94 — just since last qtr. Trouble is these estimates often get slashed, so who knows what AMZN will really make (or when). The the +170% profit growth seems good but is vs. a loss in the year-ago period.

Instead of focusing on valuation (leaves you outside looking in), we need to try to get in on a dip. Note last year the stock gave me a couple of opportunities to buy around $300 and I sat on my hands. Now the stock has soared, and I think it’s not safe to get in right now. The stock’s extended.

Fair Value

AMZN_2015_Q3_FVSo this Fair Value chart isn’t valuing AMZN properly and should be ignored. What we need is for the stock to dip and get in using technical analysis, not fundamental analysis. The 200-day moving average is a good place to start as stocks often fall to this line when they correct. That would be an entry point around $460 or so.

Sharek’s Take

Amazon.com is a leader in the market, in retail, and in web services (which is proving to be ultra profitable). I’ve been saying this for years, but it really is a must own. I just don’t own it, and am paying the price. Outside AWS, the company is really taking market share in the retail area, as it people are ordering goods through Amazon like never before. But with the recent charge in the stock price, I think we need to wait for the stock to base and/or correct before investing. I’m guessing $460 would be a fine price to hope for.

View the Earnings Table here.
View the Ten Year Chart here.
View the Profit History here.

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