Amazon Breaks Out After Strong Holiday Sales

Stock (Symbol)

Amazon.com (AMZN)

Stock Price

$1,188

Sector
Retail & Travel
Data is as of
January 2, 2018
Expected to Report
Jan 31
Company Description
amazon-videoAmazon.com, Inc. (Amazon.com) is an e-commerce company. The Company’s products are offered through consumer-facing Websites, which include merchandise and content that it purchases for resale from vendors and those offered by third-party sellers. It also manufactures and sells electronic devices, including Kindle e-readers, Fire tablets, Fire TVs, Echo and Fire phones. Amazon.com operates in two segments: North America and International. The North America segment focuses on retail sales earned through North America-focused Websites. It serves developers and enterprises through Amazon Web Services (AWS). It serves authors and independent publishers with Kindle Direct Publishing. Source: Thomson Financial
Sharek’s Take
David SharekShares of Amazon (AMZN) broke out last week on the back of solid holiday sales that included record Cyber Monday and Black Friday sales. Overall, sales jumped a whopping 34% last qtr, with help from Whole Foods, which AMZN acquired last year, and Amazon Web Services (AWS). Without Whole Foods, sales would have rose around 29% in the qtr. Amazon Web Services continues to be the star division, with superior profit margins of 22% or so. AWS had sales surge 42% last qtr compared to the year ago period. Amazon is also expanding overseas with Mexico, the Middle East, Singapore and India all hot spots for future growth. Amazon invests most of its profit into growing the company, thus profits don’t flow to the bottom line. I like to think that internally profits are growing faster than sales, and with 34% sales growth that could mean big things for this stock in 2018. In addition, the S&P 500 is doing well, with investors clocking into S&P funds like a herd of sheep. AMZN is a top stock in the S&P, and that will keep money flowing the stock’s way (until it doesn’t). With Amazon breaking out to all-time highs, there’s blue skies ahead. This is a top growth stock in the market, but you have to deal with the fact the P/E is high as management spends to not only invest but avoid paying a bunch in taxes. I feel 2018 will continue to be good for this stock, but have been taking profits to lower my exposure as the stock is extended on the ten-year chart.
One Year Chart
Normally a $800 to $1200 move in a year would make me say the stock’s on a parabolic run, as in it’s gone too-far-too-fast and the chart is pointed up too high. But this stock had a long consolidation period that gave it time to digest prior gains (and get weak shareholders out). So this stock doesn’t seem too high — especially since it had a successful breakout last week. As far as the profits go: Amazon doesn’t care what you think. Qtrly Estimates call for 20%, 20%, 278% and 121% profit growth the next 4 qtrs, but estimates have been on the decline beforeAMZN beat the street last qtr. Four qtrs ago AMZN was expected to make $7.26 in 2017. Now with one qtr to go that number is $4.32. The Est. LTG got gashed this qtr, but this is clearly a 25% to 40% grower in my eyes. 
Fair Value
I don’t know where this stock is going, but if I put a 125 P/E on 2018 and 2019 estimates it seems like the stock will be between $1000 and $1750. But I can’t get a real valuation on the stock as I don’t know how much it would be making if it slowed growth.
Bottom Line
Amazon has been on a roll since Amazon Web Services started achieving big success. When I look at this ten-year chart, AMZN does look extended. So if I had AMZN I would sell some off to take profits (and perhaps reinvest if the stock declines). The stock market has been flying higher for more than a year without a correction, and since the trend is your friend I would stay invested somewhat. But with retail hot, and new growth coming from Whole Foods, My guess is 2018 will be another good year for this stock. AMZN ranks 8th in my Growth Portfolio and Aggressive Growth Portfolio Power Rankings.
Power Rankings
Growth Stock Portfolio

8 of 38

Aggressive Growth Portfolio

8 of 16

Conservative Stock Portfolio

N/A