Bears and bulls are seemingly divided as to what’s next for Wall Street. But when it comes to Amazon (NASDAQ:AMZN), the choice to buy AMZN stock is anything but a split decision.
Friday’s “too hot” and potential “rate increasing” jobs report put Wall Street in a pessimistic mood with the Nasdaq tumbling just under 2.5%. And the dour price didn’t go unnoticed in tethered tech heavyweight AMZN, which had its shares sink just over 2.5%.
Naysaying gloomy Gus-types will declare a dead cat bounce victory. But bullish investors have already pulled a key market-based follow-through day out from under their sleeves. After much anticipation, AMZN stock has pulled the proverbial rabbit out of the hat.
Shares are up around 2.25% in Monday’s session after a 20-for-1 stock split. Let’s dig into Monday’s price driver and other factors off and on the price chart indicating why there’s more sizzle to come in June and beyond for AMZN investors.
| AMZN | Amazon | $125.21 |
Let’s Not Split Hairs in AMZN Stock
It’s the first time in more than two decades that AMZN stock has split its share price. Now priced for around $125, it’s now possible for many investors to buy shares. And it’s not to be underestimated.
The split doesn’t change the valuation proposition of what AMZN is worth intrinsically. Amazon remains a company whose market cap remains near $1.25 trillion. Shareholders of record on May 27 simply receive 19 additional Amazon shares for each share owned as AMZN stock price is reduced twenty-fold. It’s a wash. That’s true in theory at least, and one that Amazon is keenly aware of.
After the company’s intention to split shares was announced in March, Amazon officials proffered the split as making the price “more accessible for people looking to invest in the company.” And as Monday is once again (kinda sorta) proving, the phenomenon supports previously shut-out investors demanding shares and stock price appreciation.
AMZN Stock’s Other Attractive Goods
Source: Charts by TradingView
To be fair to the bears and terrified bulls who took 14% off AMZN stock following late April’s earnings report, there were plenty of concerning line items. But the report wasn’t nearly as awful as billed. For one, Amazon’s ad revenues grew by 23% from 2021’s first quarter.
Also, the tech giant’s AWS cloud business delivered burly, above-views sales growth, as well as double-digit and growing gross margins which continued to confirm Amazon as the 800 pound gorilla in the market against competitors Microsoft (NASDAQ:MSFT) and Alphabet’s (NASDAQ:GOOG, NASDAQ:GOOGL) Google.
Just over a month since reporting, AMZN stock also bullishly enjoys having the market at its back with a confirmed follow-through day, as well as a monthly price chart that’s ready to deliver profits back to shareholders.
In the wake of three failed double bottom setups over the past year, the monthly view reveals a very attractive oversold bullish monthly hammer formed outside AMZN’s Bollinger band. What’s more, the reversal formation is stationed on key longer-term trend, Fibonacci and price support.
Promisingly, the monthly pattern could be a new higher-low pivot within AMZN’s uptrend, which over time sets up new all-time-highs for today’s Amazon buyers.
Buying AMZN Stock
As this morning’s out-the-gate AMZN stock buyers are quickly learning, there’s no free lunch when it comes to buying a split. Shares are off more than 3% from their intraday high. And since announcing the split on March 9, AMZN stock is off by about 10%.
While statistically a stock split can add value, investing in that type of bullish vacuum can also obviously produce losses. Importantly, don’t underestimate a good market to buy versus a bearish investing environment and as we’ve seen during much of 2022.
That being said, with the current market rally in place and today’s confirmed bottoming candle in AMZN stock, I’m upbeat this year’s 25% decline in shares is a buying opportunity with upside.
On a final note, maybe the best news about today’s AMZN stock split is that it invariably allows some investors to buy round lots which can be fully hedged and actively managed with a collar strategy. And if Amazon remains too pricey for 100 shares, the good news is a bull call spread continues to offer stronger risk-adjusted returns always available to a much larger base of AMZN stock buyers.
On the date of publication, Chris Tyler 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.
