Last Thursday, Amazon (NASDAQ:AMZN) delivered a killer third-quarter earnings report. The company blew past expectations — which were already lofty. Moreover, its Q4 guidance is ahead of Wall Street’s estimates. Sounds great, right? Well, the market reacted oddly to all this good news, battering AMZN stock. On Friday, Amazon shares dropped a little over 5.4%.
After Friday’s drubbing, Amazon is now off its 2020 high close — which was set at the start of September — by 14%. Some investors are heeding this performance as a warning, taking their profits and dumping their shares. Personally, I look at this as a buying opportunity.
AMZN currently has an “A” rating in Portfolio Grader, and we’re headed into what will likely be an historic holiday shopping quarter.
AMZN Stock Delivers a Killer Q3, Predicts a Strong Q4
On Oct. 29, Amazon announced its Q3 results. They were impressive, to say the least.
Net sales hit $96.1 billion for the quarter, a 37% year-over-year (YOY) increase. That was also a huge beat over Wall Street predictions in the $92.7 billion range. Likewise, earnings per share were anticipated to be around $7.41, but Amazon delivered $12.37, again blowing past expectations.
And it’s not just shoppers who are driving Amazon revenue. The company’s AWS cloud computing division posted revenue of $11.6 billion, up 29% YOY. Advertising revenue was up 51% to $5.4 billion as well.
The company also issued positive Q4 guidance. Amazon is expecting net sales for the holiday quarter to be between $112 billion and $121 billion — growth of between 28% and 39% compared to last year. Wall Street was looking at the lower end of that guidance.
In a statement via CNBC, CEO Jeff Bezos said:
“We’re seeing more customers than ever shopping early for their holiday gifts, which is just one of the signs that this is going to be an unprecedented holiday season.”
Why Did Amazon Drop?
So, with all that sounding nothing but positive, why did Amazon take a dip? Logically, you would expect shares to pop after an earnings report like that. Instead, AMZN stock closed Friday at around $3,968 for a loss.
One explanation for this retreat could be profit-taking — some investors may have decided their gains for 2020 were good enough.
Other investors may have also been spooked by the additional costs the company assumed through the pandemic. Amazon is predicting those costs could double to $4 billion in Q4. For example, shipping was up significantly in Q3, with over $15 billion spent delivering packages. That’s 57% higher than last year — and those costs will only rise during the holidays.
Whatever the reason may be, though, the result was a drop in AMZN’s price. But should that scare you off after an otherwise stellar quarter? I don’t think so.
It’s no secret that I think Amazon is under-valued. So, perhaps you’d like to know what other analysts think. After all, if the stock was down after Q3, someone must be telling investors to sell, right?
No so fast. The Wall Street Journal tracks 49 investment analysts who cover Amazon, and there is not a single sell rating among them. On top of that, there are only four holds. The whopping 41 other analysts still rate AMZN stock as a buy, with five analysts rating it overweight.
What’s more, their average 12-month price target is about $3,810, offering a 20% upside.
The bottom line? Shares in Amazon were already struggling to recover from the September tech stock selloff. This Q3 earnings selloff, then, is just a gift to those who believe that AMZN stock was already a bargain. Back in October, I recommended the company as a buy in advance of Prime Day, but now it’s even more compelling for savvy investors.
This is a stock with significant upside at a discounted price. I’d move before the market comes to its senses.
On the date of publication, Louis Navellier had a long position in AMZN. Louis Navellier did not have (either directly or indirectly) any other positions in the securities mentioned in this article.
The InvestorPlace Research Staff member primarily responsible for this article did not hold (either directly or indirectly) any positions in the securities mentioned in this article.
Louis Navellier had an unconventional start, as a grad student who accidentally built a market-beating stock system —with returns rivaling even Warren Buffett. In his latest feat, Louis discovered the “Master Key” to profiting from the biggest tech revolution of this (or any) generation.