Why Amazon Stock Is Headed Nowhere Fast

Advertisement

Amazon.com (AMZN), which Wall Street seems to think can do no right, got a surprising pat on the back today from a Wall Street analyst who argued the ecommerce giant was going to have a jolly holiday season.

amazon amzn stockSame-store sales surged 26%, 24% and 46% on Thanksgiving, Black Friday and Cyber Saturday, according to note to clients issued today by Pacific Crest analyst Chad Bartley.

Not only did Amazon’s performance top the industrywide average on each of the three days, but the ecommerce giant also gained market share.

“In addition, strong SSS (same-store sales) growth for Amazon during the first three weeks of November…which did show an acceleration, gives us confidence that Amazon’s SSS growth for the entire month of November will be much stronger than the 12% growth in November 2013 and likely above the 32% growth in October,” Bartley wrote. He rates Amazon stock as “outperform”, a view shared many of his colleagues.

I think they’re nuts and there’s no better illustration of my point than today’s action in Amazon stock, which fell nearly 4%.

Today, Moody’s changed its outlook on the company’s debt to “negative.” Moody’s is understandably worried that Amazon is continuing to pile on debt and isn’t providing any guidance about when it will be profitable.

“Proceeds are to be used for general corporate purposes in support of Amazon’s myriad growth initiatives, and it is Moody’s expectation that the funds will not be utilized for any form of shareholder returns,” wrote Moody’s analyst Charlie O’Shea in a note to clients.

Amazon Keeps Tossing Money Down the Drain

An analysts’ report that a company was growing at a better-than-average double-digit growth rate would ordinarily send its shares through the roof. But as owners of Amazon stock know too well, AMZN is anything but an “ordinary company.” Under CEO and founder Jeff Bezos, the company has shown a willingness to spend billions in shareholder money investing in whatever strikes the billionaire’s fancy such as the much-derided Fire smartphone or grocery delivery. And who could forget the armada of delivery drones that the ecommerce giant wants to send through the skies?

The Fire smartphone has been such a disaster that the company took a $170 million write-down of unsold inventory in the latest quarter. AMZN recently announced a second price cut on the Fire. Don’t expect demand for the device to pick up at all. If anything, expect another price cut.

As for grocery delivery, that is another money pit. AMZN has invested billions in a network of warehouses that will be used for Amazon Fresh, which is being rolled out very slowly. It already is available in Seattle, several California cities and one neighborhood in Brooklyn, New York. But lots of companies, including traditional grocery chains, offer delivery to customers. Even Uber, the fast-growing and controversial ride share service, is thinking of getting into the market. It’s not clear how Amazon will steal business away from those companies.

Bezos captured the attention of the world’s media earlier this year when he told 60 Minutes of his vision of a drone delivery service. It sounded real cool and futuristic, at least to the public and the press. But regulators had other opnions, grounding the Amazon fleet — dubbed Prime Air — in June, citing safety issues. It doesn’t look like Amazon drones will be flying the friendly skies anytime soon.

Bottom Line for Amazon Stock

Shares of Amazon stock plunged nearly 4% in trading today, indicating that Pacific Crest’s analysis didn’t wow many people.   AMZN has slumped 18% this year, and given its insane forward multiple that tops 173, it’s hard for me to recommend Amazon stock to anyone. AMZN has never generated consistent profits throughout its history, which is even better reason to look for other investments.

Amazon stock is headed nowhere for the foreseeable future because the company shows no signs of reigning in its free-spending ways. And let’s not forget competition like Alibaba (BABA), which does more business than Amazon. Eventually, the Chinese Internet is going to after AMZN and will further pressure Amazon stock downward.

As of this writing, Jonathan Berr did not hold a position in any of the aforementioned securities.

More From InvestorPlace

Jonathan Berr is an award-winning freelance journalist who has focused on business news since 1997. He’s luckier with his investments than his beloved yet underachieving Philadelphia sports teams.


Article printed from InvestorPlace Media, https://investorplace.com/2014/12/amazon-stock-headed-nowhere/.

©2024 InvestorPlace Media, LLC