It didn’t take long for shares of Amazon.com Inc. (NASDAQ:AMZN) to shrug off any post-election concerns about the incoming president and get set up for an end-of-the-year run.
AMZN stock is up nearly 8% since this time last week and has now recovered all of the losses it suffered in the days after Donald Trump won the election. Sure, the wider technology sector took a beating on the outcome, but AMZN was singled out for pain given the tension between CEO Jeff Bezos and the President-elect during the campaign. Recall that Bezos offered to shoot Trump into space, and Trump responded by saying Amazon should be investigated for antitrust violations.
AMZN is, clearly, not a monopoly. It’s the dominant e-commerce retailer, but it’s scarcely the only one. Regardless, being on the bad side of a mercurial president isn’t something any investor wants to see.
Fortunately, cooler heads on the part of Trump, Bezos and the market have prevailed, allowing investors to focus on what really matters, at least for the time being. Amazon’s fundamentals remain as compelling as ever and AMZN stock has some technical juice, too.
On a technical basis, Amazon stock exhibited resilience in the aftermath of the post-election selloff when it could have just as easily kept tumbling. After all, shares were already in a downtrend following last month’s all-time high. It’s not unusual to see a name cool off after reaching such lofty heights. Give it a push in the form of “disappointing” earnings, and even steeper losses are all but certain.
So, AMZN failed to find support at its 50-day moving average many sessions before the general election. That put the 200-day moving average in play — a test AMZN passed. Indeed, the key level provided a springboard to the 8% rally over the last week. Amazon stock is now on the cusp of testing resistance at its 50 DMA. If it can swap that level over to a line of support, we’ll be back on track for higher highs and higher lows.
AMZN Is More Than its Chart
If Amazon can go on a little run here, it’s a good bet that it will benefit from a little end-of-the-year window dressing. That’s when portfolio managers chase performance in hot names to pretty up their returns before closing the books on the year.
Click to EnlargeHowever, as much as the technicals are lining up for Amazon stock, the real story remains the long-term fundamentals. First of all, AMZN remains a mega-cap machine. Revenue grew nearly 30% year over year — off a base of $25 billion. Operating profit advanced more than 40%. Free cash flow rose to $1.7 billion from $738 million a year ago. Earnings per share tripled, which is pretty good for a company not known for generating reliable profit.
Perhaps most importantly, Amazon Web Services continued to drive the upside. The company’s cloud-based services business delivered almost all of Amazon’s operating profit, yet still accounts for just 10% of total revenue. It looks like this segment is just getting started.
This is important because AWS is a centerpiece of the buy thesis on AMZN stock. Operating profit from the cloud now dwarfs the income churned out by the company’s e-commerce segments. Plus, the free cash flow it generates helps fuel Amazon’s always-ambitious expansion plans.
Amazon consistently gets knocked for being indifferent to profit. Well, that’s not exactly the case. It’s simply putting investment ahead of short-term profits.
Shares often stumble on operating expenses, but such investments are central to its identity. Investing for growth is what Amazon does (that’s how it can trade at 88 times earnings). A bet on AMZN stock is about what the company can create years, perhaps decades, from now.
If anything, AMZN should be applauded for thinking about the future more than a quarter at a time.
As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.
