Amazon Stock Falling For a Reason: Slower Growth

by Louis Navellier | January 31, 2014 11:51 am

Welcome to the Stock of the Day.

Shares of Amazon (AMZN[1]) stock are down nearly 10% this morning after the e-commerce giant reported 20% sales growth and 146% earnings growth for the fourth quarter.

What happened? Could this be a Prime buying opportunity? Find out now.

Company Profile

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.

Earnings Rundown

Amazon reported mixed operating results for the fourth quarter. Compared with Q4 2012, sales advanced 20% to $25.59 billion and net income jumped 146% to $239 million, or 51 cents per share. However, adjusted earnings were 51 cents per share, which missed the 66 cents per share consensus estimate by a wide margin. AMZN shares sunk after the earnings miss.

Looking Ahead

The nail in the coffin for Amazon was its weak guidance. 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 several weeks. In the past month, the consensus EPS estimate for FY 2014 has fallen 8.2% to $2.67. And after the company’s latest guidance it’s likely that this number will be revised down again. So I’d keep a close eye on analyst earnings revisions to get a better understanding of where is headed.

Current Ratings

Before you buy any stock, you should always run it through my free Portfolio Grader ratings system. While AMZN started off 2013 at a B-rated buy, it didn’t take long for the online commerce company to slip to a C-rating, then a D-rating (in April).

While Amazon 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, operating margin growth and earnings momentum (A- rated). Meanwhile, Amazon squeaked by with C-ratings for earnings growth and earnings surprises.

As for the other three metrics (earnings revisions, cash flow and return on equity), AMZN outright failed with D-ratings. 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[2]!

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