- Amazon (AMZN) stock lost 30% of its value in under two months.
- There could be more downside risk.
- Smart money should be looking to buy the dip.
I consider Amazon (NASDAQ:AMZN) as a contender for the best public company ever. Therefore, I by default consider AMZN stock one to buy on dips. The larger the debacle, the better the opportunity for the long term. Last week, the sellers stepped into it hard and they caused a lot of damage for investors. The catalyst was the earnings event, but there was more to the story.
First of all, the indices were already under fire for weeks. The jitters stem from serious geopolitical threats. Moreover, the U.S. Federal Reserve is waging economic war on inflation, which hurts stocks. So the environment was already toxic for AMZN stock going into a binary event. It never had a chance and investors sold it in droves last Thursday night. Even the mighty Apple (NASDAQ:AAPL) stock stumbled that night and is still wobbly.
Going forward investors will face the decision to pounce or bail. History shows that buying dips is worth investigating when this Amazon beast stumbles. Its challenges haven’t lasted long and those who gave it a chance made a killing.
Earnings Disappointed AMZN Stock Investors
I have so far judged the Amazon results using revenue metrics. Those who shorted it for a decade based on profitability were wrong. In the end, the company proved that they needed to spend a lot to change the world. It turns out that it is necessary to spend a lot to make a lot. It took them a while, but finally the experts got on board.
In addition to the weak markets, the Amazon report contained one-off elements that added to the confusion. Management actually met the sales estimates but they were not outstanding. Investors have come to expect excellence, so there was disappointment there. But the real confusion perhaps came from the large miss on earnings. Amazon is a large investor in the hopeful EV company Rivian (NASDAQ:RIVN). Since RIVN lost 70% of its value, Amazon needed to account for that.
There Are No Systemic Risks
As a result of the write downs, the AMZN earnings-per-share metrics were horrific. This doesn’t reflect on the company’s operation going forward. I trust that management knows how to handle their investments. They’ve earned the right to have the benefit of doubt since they brought us the cloud. But for now, I would let the sellers have their day without joining the selling party.
Amazon averaged 27% yearly growth at least since 2015. Their net income grew from $596 million to $33.4 billion last year. Those who believe that one bad report is the mark of failure are wrong. While I am not blind to the relative weakness of the results, I would not be quick to kill it. Most other mega-cap companies reported deterioration in growth. They can’t continuously expand exponentially without periods of consolidation.
Persistent Growth Justifies Amazon as a Buy
I am confident of my opinion same as I was during a tough week three years ago. Those who listened back then doubled their money. As big a fan as I am of AMZN stock, I am not a jump all-in kind of guy. This is especially true while serious geopolitical and macroeconomic threats linger. AMZN stock could fall another 30% through no fault of its own. Sadly, stocks don’t trade in a vacuum and they usually follow the indices. The Invesco QQQ Trust (NASDAQ:QQQ) lost footing last week and if the bulls don’t recover it there is much more pain coming. The outcome of this week will make or break AMZN’s ability to stabilize.
Options traders can start deploying bullish strategies that leave room for error. Today I debated such methods with dozens of traders in my chat room. The idea is to sell puts out in time and much below the current price. The caveat is that you should be willing to own shares about 30% below the current price.
On the date of publication, Nicolas Chahine 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 InvestorPlace.com Publishing Guidelines.