They say that somewhere in the middle lies the truth. This is a concept that can help guide investors while trading Amazon (NASDAQ:AMZN) stock.
There hasn’t been another stock like it, and it has rewarded its owners handsomely.
In the shorter term it’s a different story, because it is the king of momentum stocks. It moves so fast that it’s always overreacting one way or another. It’s feast or famine with absolutely no moderation on Wall Street.
AMZN stock fell 10% in a week to start the month of May. Before that it rallied 24% going into its earnings report. Going into that rally, the February tech correction had cost it 15%. After all of this action, year-to-date it is not a star barely up 1%. The S&P 500 and Alphabet (NASDAQ:GOOGL,NASDAQ:GOOG) are up 12% and 32% respectively. Short term it may be dim but long term its luster is brighter than all mega-caps. Not only from the scoreboard perspective but more from the accomplishments. To truly appreciate its might, we should consider the big picture of this incredible company.
AMZN Stock Will Have a Massive Breakout
There is great fundamental reason to own shares for the long term. But technically there is even more concrete reward that could start soon. The next breakout trigger to buy in AMZN stock is when it sets a new high. Recently it has had two fails, when the bulls breach it they will have a 500-point runway. Technically, the target is much higher than that but let’s not spook the readers just yet. Besides, the true opportunity in Amazon lies with time and scope of its operations.
The company has nothing to prove to anyone and has silenced the doubters for good. It took them 10 years to finally convince Wall Street that spending aggressively is OK. There’s hardly anybody now that complains about thin margins for this monster company. They have disrupted every sector they entered and they continue to be a perpetual startup. This is the picture-perfect growth company.
What makes it so incredible is that it’s still the cheapest of all the mega-cap stocks. I get push-back when I make this point, but I am confident that I am right.
When a company delivers astronomical growth, the proper metric to use is its price-to-sales (P/S). The price-to-earnings is almost meaningless for as long as they deliver revenue expansion. Amazon P/S is 4, which is 60% cheaper than Apple (NASDAQ:AAPL), twice cheaper than Facebook (NASDAQ:FB), and five times cheaper than Tesla (NASDAQ:TSLA).
A Good Company That Does Good Things
There is nothing not-to-like about how management has run the company so far. They have had negative press on some of their human resource issues, similar to what Walmart (NYSE:WMT) went through. They are both giants, as Amazon now employs more than 1.3 million people. Companies this big are going to step on a few toes.
They don’t get credit for raising the minimum wage years ahead of everybody else, including government. It’s easy to pick on a giant and call them evil. In reality, during the pandemic, they gave people jobs when they needed them. I know people who went there, and I bet you do too.
The earnings report was a blockbuster. Management delivered 44% sales growth and +60% EPS year-over-year. To continue to do this after more than a decade is simply astonishing. This is one of a kind company that will never find an equal.
The founder Jeff Bezos did a great job, and he is stepping down as CEO. That is not that a big concern because I am confident the team taking the helm is just as strong. Sometimes a leader’s brilliance is picking the right people for the job. Genius is not always in gadget invention. Assembling a perfect team is its own kind of magic.
I’m grateful to have had the opportunity to convince people to stay long for years. The concerns were almost always about spending. That’s a selling point, because when they overspend, they usually deliver fantastic things. They didn’t invent the cloud, but they built it and own it. Now the rest are playing catch up and by the time they do, Amazon will have something new to dominate.
I’m going to throw an idea out there for you that you may chuckle at now. I have a hunch that within five years, I may be buying broadband service from an Amazon satellite launched by Blue Origins. Ponder that until the next article.
On the date of publication, Nicolas Chahine did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Nicolas Chahine is the managing director of SellSpreads.com.