Amazon.com, Inc.: Amazon Prime Day Isn’t Enough to Stop AMZN Selloff

Although the rest of the market has enjoyed multiple days on the upside, e-commerce giant Amazon.com, Inc. (NASDAQ:AMZN) is struggling despite another successful “Prime Day” last week.

Amazon.com AMZN

Now the stock is in the midst of a five-day pullback, just days after hitting an all-time high in anticipation of the annual event.

I’m not totally surprised — this is another one of those “buy the rumor, sell the news” situations, where investors load up on a stock due to hype and quickly sell for a profit.

Last week’s event was only the second Amazon Prime Day, where AMZN discounts hundreds of thousands of products exclusively for subscribers to to its Prime service. Management chose not to release numbers for total sales, but by all accounts it was a significant boon for revenue.

Amazon Is Still Overvalued

Orders were up 60% worldwide and 50% in the U.S. from Amazon Prime Day 2015. Plus, third-party sellers sold nearly triple the orders year-over-year while Amazon sold more than 2.5 times the Fire TV devices in last year’s event.

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Unfortunately, those big numbers didn’t stop investors from having a sale of their own the day after. So where does Amazon stock go from here?

From a fundamental perspective, AMZN is actually a little overvalued right now based on traditional metrics.

By 2020, the company is expected to earn nearly $30 a share, and trades at 25 times those estimates. So even though the company is starting to make money and get more of its products into consumers’ hands, it’s still a bit pricey.

That being said, I’m still bullish on Amazon stock over the long term. In fact, I would even say that those per-share estimates are too low. The company has done an incredible job of monopolizing online retail and I have no doubt it will continue to scoop up market share, especially if it can continue to draw consumers into its ever-expanding ecosystem via the Echo, Fire TV, Kindle lineup and other products.

Amazon’s unique methods of boosting sales are working so well that other retailers have been coming up with similar deals. Wal-Mart Stores, Inc. (NYSE:WMT), for example, is now offering free two-day shipping for an annual fee of $49.

Those long-term gains, however, may come after some more short-term pain.

From a technical perspective, the dip we’re seeing now will likely continue until AMZN stock hits support at $730 or the 50-day moving average around $715. Once those levels are tested, odds are good that AMZN will be able to regain its upward trend again.

Matthew McCall is founder and president of Penn Financial Group, an investment advisory firm. Matt also is Editor of FUTR Stocks, the ETF Bulletin and Co-Editor of Breakout Stocks.

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