Will Amazon.com, Inc. (AMZN) Stock Deliver Christmas in April?

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AMZN - Will Amazon.com, Inc. (AMZN) Stock Deliver Christmas in April?

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The 2015 Christmas season was a great one for Amazon.com, Inc. (NASDAQ:AMZN). Revenues exceeded $35 billion, and AMZN stock took off. Since then, it has risen by more than 46% to an April 25 closing price of roughly $907 per share, good for a market cap of $433 billion.

Amazon.com, Inc. (AMZN)

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The magic of Amazon is that what first seems extraordinary soon becomes the norm. company is that what first seems extraordinary soon becomes the norm. Analyst estimates for first-quarter results, to be delivered Thursday after the market closes, are for revenues of $35.4 billion and profits of $1.10 per share. The whisper number sits decidedly higher, at $1.20 per share.

Think of it as Christmas in April.

When I first got into Amazon stock, early in 2014, the shares were climbing a wall of worry about profitability and the company was roughly the size of Target Corporation (NYSE:TGT). This year, AMZN will be bigger than two Targets, and the cheering won’t stop.

But when 35 of 45 analysts have a stock on their buy lists, I start to get worried.

Is AMZN Stock Overpriced?

At its current price, Amazon is selling for more than three times its sales of $135 billion and 185 times its earnings. This is in a world where most retailers sell at 40% of their annual sales, and it should be remembered that most of Amazon’s revenue still comes from retailing.

In a market that is fluffier than Donald Trump’s waistline, there is such a thing as too much winning. Even the best stocks deserve a pause now and then.

Amazon’s valuation is getting ahead of itself.

That’s not the same as saying Amazon stock is not a great long-term holding. It is. It’s the next big thing. But you don’t get rich buying at market tops, market tops don’t announce themselves, and 35 years of investing experience tells me we are very close to one.

AMZN stock tends to move quickly after earnings. Shares rose sharply a year ago after the company reported, but they also fell hard in October after its announcement.

The reason for Amazon’s volatility is its small float. There are fewer than 500 million shares outstanding. If the company did what Apple Inc. (NASDAQ:AAPL) did a few years ago and split, its moves would smooth out. But smart investors also would get fewer opportunities to cash in big.

The fact that the Amazon “whisper number” is 10 cents per share higher than the official estimate on earnings says you might make money on the stock if it disappoints and dips.

That’s what I wrote in January, and that is what happened.

Amazon Is Costco

What few analysts have noticed, yet, is that Amazon is now being managed a lot like Costco Wholesale Corporation (NASDAQ:COST).

Its membership income, Amazon Prime, is becoming the best proxy for earnings — operations still run at breakeven.

It’s just another indication of how dependent Amazon’s top line is on retailing, on breaking bulk and getting individual items into consumers’ hands. For all the hype about cloud computing being worth $120 billion, AWS is a $12 billion business. Amazon is still about retail.

The company’s new Subscribe with Amazon offering is just another form of retailing. The point of its Alexa voice assistant is to enable retailing. Its entry into Australia and India is about retailing, breaking bulk and breaking even at it.

Bottom Line on Amazon Stock

Every so often, analysts who are throwing out price targets like $1,250 per share on AMZN stop to realize it’s still a retailer, much like Tesla Inc (NASDAQ:TSLA) is still a car company, and the shares fall.

If you start to hear pessimism like that, especially after a disappointing earnings report, that is when you want to think about adding some AMZN stock to your portfolio, if you don’t already have some.

So if you don’t yet hold Amazon, look for the cloudy lining.

Dana Blankenhorn is a financial and technology journalist. He is the author of the political polemic Saving Trumpistan, Restoring Democracy, available now at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing, he was long AAPL and AMZN.

Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, available at the Amazon Kindle store. Tweet him at @danablankenhorn, connect with him on Mastodon or subscribe to his Substack.


Article printed from InvestorPlace Media, https://investorplace.com/2017/04/will-amazon-com-inc-amzn-stock-deliver-christmas-in-april/.

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