Internet retailing giant Amazon (AMZN) has been in the news lately, thanks to a number of new developments. First, the company announced that it has partnered with Viacom to expand its streaming lineup, while just today, the company revealed that it would now be selling Kindles in China.
The recent burst of news, along with a general trend towards discretionary stocks, has helped Amazon to outperform lately, beating out the S&P 500 over the past week, and one month time frames. This helps to reverse what investors have seen in the year-to-date period, as AMZN has greatly underperformed broad benchmarks, trailing the S&P 500 by about 1,000 basis points in the past six month alone.
Given this shift, some investors might be thinking about getting in on the Amazon growth story, hoping for a return to prominence for this once high-flying stock. This may be especially true if the consumer continues to come back, and if Amazon’s new growth avenues pay off (such as grocery deliveries, talk of an Amazon phone, etc).
However, how big can Amazon really get? And will investors soon demand that the company find a way to become more profitable?
More importantly, are you a buyer or seller of Amazon stock at this time?
Reasons to Buy AMZN:
- The company has a dominant position in the online retail segment, and has seen great success in many of its newer devices such as the Kindle and Kindle Fire.
- Earnings growth is projected to be quite impressive; 370% EPS growth is expected for the current year.
- While the Zacks Rank #3 (Hold) isn’t that impressive, the internet commerce industry is ranked 19th, suggesting a strong trend in the surging sector.
Reasons to Sell AMZN:
- Margins remain low for the company, and the firm keeps moving into low margin businesses, like groceries. How long will investors stomach these meager earnings figures?
- The forward PE is pretty absurd, coming in over 200. Obviously, this is far higher than pretty much any other large company, and especially so when compared to other retailers.
- Estimates have come down for the current quarter and current year time periods, with near universal agreement. Estimates are now at near breakeven levels, could AMZN run into another unprofitable quarter?
What do you think? Is this when AMZN turns it around, or will investors soon give up on this company that many believe is trying to do too much?
Let us know in the comments below!
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