Amazon Flash Crash Is a Generous Gift from the Markets

The truth is, not everyone can afford to invest in Amazon (NASDAQ:AMZN). However, if you want to invest in the most successful U.S. e-commerce company, AMZN stock is the obvious choice.

Source: Rocky Grimes /

Maybe the company will enact a share split one of these days. Until then, prospective investors will either have to accept the high cost of entry, or move on to another stock.

One notable development, though, is that the AMZN stock price recently became a little bit less expensive. Due to a quick 7% share-price drop at the end of July, Amazon founder Jeff Bezos lost more than $13 billion in a single day (don’t worry – I’m sure he’ll be OK).

So, what caused the investing community to dump their Amazon shares? As we answer this question, we might just find an opportunity amid the chaos – or at least, a decent entry point in one of the market’s most expensive stocks.

A Closer Look at AMZN Stock

And when I say “expensive,” I’m not exaggerating. AMZN stock has traded near or above the $3,000 level for a full year now, if you can believe it.

One way that smaller accounts can take a position in this pricey stock is through call options.

That’s a whole other can of worms, but to summarize my point, call options can allow investors to participate in the upside of expensive stocks with a relatively small amount of capital.

Another point I’d like to make is that AMZN stock isn’t trading at a horrendously high multiple.

In fact, Amazon’s trailing 12-month price-earnings ratio is 58.4. This is probably less bloated than some investors might have expected.

And so, you’ve got a $3,000+ stock, but also a company that’s earning money hand over fist. Just maybe, then, the high cost of entry is justifiable.

But let’s focus now on the share-price drop from $3,600 to $3,300 that happened not long ago. What the heck happened there?

Called On to Deliver

There’s no doubt about it. Just as shoppers have flooded Amazon with orders for all kinds of goods, investors have demanded that the company deliver mind-blowing fiscal stats, quarter after quarter.

Yet, even an e-commerce leviathan like Amazon can only grow so fast, for so long.

It seems that both the analysts and the investors have become spoiled, or at least jaded, by Amazon’s powerful growth trajectory.

Perhaps I can’t blame people for having sky-high expectations. After all, practically everybody and his uncle uses Amazon nowadays.

“Over the past 18 months, our consumer business has been called on to deliver an unprecedented number of items,” Amazon CEO Andy Jassy said.

Meanwhile, for the second quarter of 2021, Amazon delivered perfectly acceptable results – or so it would seem, if our expectations are reasonable.

Not What They Hoped For

So, let’s clear the air and break down the actual numbers.

For the second quarter of 2021, Amazon posted $113.1 billion in revenues.

That should be something to celebrate, as it represents a 27% year-over-year increase over an already mind-blowing dollar amount.

But again, people have become spoiled by Amazon’s past performances. Thus, the $113.1 billion in revenues apparently wasn’t good enough, as it missed the analysts’ consensus estimate of $115.1 billion.

Personally, I’m not disappointed at all by Amazon’s quarterly revenues. Furthermore, the company reported second-quarter earnings per share of $15.12, and that’s significantly higher than the consensus estimate of $12.22.

Besides, Amazon’s most recent Prime Day was absolutely outstanding, as more than 250 million items were sold during that event.

Therefore, the flash crash in the AMZN stock price seems irrational. And if you like to capitalize on market irrationality, then this is exactly what you’re looking for.

The Bottom Line

Are Amazon shares expensive? It depends on the angle you’re taking.

As long as Amazon continues to generate strong revenues, the lofty AMZN stock price may actually be justifiable.

And with the share price pulling back based on an unreasonable reaction, you might be able to get in at a pretty good entry point now.

On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the Publishing Guidelines.

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