The online retail giant known as Amazon (NASDAQ:AMZN) isn’t cheap or particularly hated by analysts, so normally I wouldn’t recommend AMZN stock. However, Amazon stock could benefit from lowered expectations as the company’s third-quarter earnings announcement approaches.
Expect a measure of volatility in the Amazon stock price on Oct. 25, after the company releases its earnings on the previous day following the market close. AMZN stock price is down since it released its Q2 results, so the company now has a chance to redeem itself or disappoint investors.
Can AMZN Stock Reclaim the Big 2K?
Certain numbers seem to hold special significance for traders, particularly the ones that end in lots of zeros. In the case of Amazon stock, $2,000 has been a psychologically important level. That’s especially true since it’s proved to be a resistance level for Amazon stock for awhile now.
On July 25, when Amazon released its Q2 earnings report, analysts, on average, had expected the company’s earnings per share for that quarter to be $5.57. But the actual number was $5.22.
That certainly didn’t help Amazon stock price, and afterwards multiple additional factors took a toll on AMZN stock: the U.S.-China trade war, fears of a global economic slowdown, anti-Amazon tweets from President Donald Trump, and criticism from regulators.
Additionally, Amazon might have been a victim of its own growth, as not everyone believes that the company has been sufficiently profitable to merit a $2,000 stock price. As Christopher Noe and Joseph Weber of MIT’s Sloan School of Management pointed out in a financial research paper:
“(Amazon) reached (its current) size with little to show in terms of profitability. Amazon chose to invest in expansion and research and development with the idea that sacrificing profit in the short-term would allow the company to maximize profit in the long-term.”
But the upcoming earnings release could be the pivot point that allows all of that R&D to pay off, enabling AMZN stock price to clear that $2,000 hurdle once and for all.
Gearing Up for the Big Day
With Oct. 24 almost here, the analyst community is buzzing about the outlook of AMZN stock. As always, everybody’s got an opinion to share. For instance, Credit Suisse analyst Stephen Ju assigned an “outperform” rating on Amazon stock, and he increased his price target on AMZN stock to $2,400 from $2,225. In other words, Credit Suisse is quite confident that the $2,000 hurdle will be surmounted, and then some.
Not all analysts are so bullish on Amazon stock, though. In fact, the analyst community collectively expects the company’s Q3 EPS to decline year-over-year by 21% to $4.60. Interestingly, analysts’ average Q3 EPS estimate has, during the past 30 days, dropped by 1.66%.
As for the company’s own calculations, Amazon projects that its operating earnings will decline into the $2.1 billion-$3.1 billion range in Q3, versus $3.7 billion during the same quarter of last year. I feel that setting the bar so low could be a tactic on Amazon’s part, a setup for a massive earnings beat that will boost AMZN stock.
The Bottom Line on Amazon Stock
Traders and investors should expect the Amazon stock price to be volatile ahead of and after AMZN’s Q3 results. The owners of AMZN stock who can handle some potentially sizable price moves, though, could net a nice profit, as the company’s very modest outlook could lead to a very pleasant surprise.
As of this writing, David Moadel did not hold a position in any of the aforementioned securities.