Welcome to the Stock of the Day.
Shares of Amazon.com (AMZN) are up on an otherwise down day for the markets after the online retailer announced a 25% hike to the price of Amazon Prime. Could this be a Prime buying opportunity for Amazon stock?
Find out now.
We all know Amazon. This is the biggest online retailer out there, where you can buy just about anything you can think of and have it delivered to your home in just a few days.
From its humble beginnings as an online bookseller, Amazon’s current size and status is a testament to its ability to execute. However, as I’ll discuss shortly, the company’s commitment to its customers doesn’t always trickle down to its investors.
Amazon now ships more than 20 million products through Amazon Prime, a service which offers “free” two-day shipping for a flat annual rate. But as the price of fuel and transportation has increased, Amazon Prime has become more of a drain on the company’s bottom line.
Faced with shrinking margins, Amazon has decided to hike up the price of its Amazon Prime membership by 25% to $99 per year. The company alluded to a price increase during its earlier quarterly earnings report, so Wall Street appears to be celebrating the fact that there wasn’t more of an increase.
Nonetheless, I wouldn’t take today’s optimism as a sign to buy, and here’s why.
For Q1 2014, Amazon expects net sales between $18.2 billion and $19.9 billion, representing 13% to 24% sales growth. The company also forecasts operating income between a loss of $200 million to a profit of $200 million. We’ve also seen some sizeable downward analyst earnings revisions over the past two months.
For the first quarter, the consensus earnings estimate has plunged 57% to 23 cents per share. For FY 2014, the EPS estimate has fallen 28% to $1.91. If you own Amazon stock I’d keep a close eye on analyst earnings revisions to get a better understanding of where Amazon is headed.
Before you buy any stock, you should always run it through my free Portfolio Grader ratings system. Amazon stock spent much of 2013 at a D-rated sell. While the stock has since risen to a C-rated hold, that’s not saying much.
Of the eight fundamental metrics I graded this company on, it only excelled in terms of sales growth (B), earnings growth (A) and earnings momentum (A).
Meanwhile, Amazon squeaked by with C-ratings for operating margin growth and cash flow. As for the other three metrics (earnings surprises, analyst earnings revisions and return on equity), AMZN outright failed.
AMZN receives a C for its Quantitative Grade and a C for its Fundamental Grade.
Bottom Line: As of this posting I consider Amazon stock a C-rated Hold.
Would you like to check the fundamentals backing up one of your stocks? For more stock grades, please visit my Portfolio Grader website!