Imagine losing $15 billion in net worth over the course of a few hours.
That’s exactly what happened to Amazon. On Friday, shares of the world’s largest retailer dropped 10 percent after the company reported a second-quarter loss of 27 cents per share, 12 cents lower than Wall Street’s estimates. Making matters worse, Amazon forecasted that its third-quarter operating loss could be as steep as $810 million, compared with a loss of $25 million in the third quarter of 2013.
At this point, is Amazon just too risky of an investment? Gina Sanchez, founder of Chantico Global, believes so.
“Amazon really looks incredibly risky,” said Sanchez, a CNBC contributor. “This is a very high-volume, low margin business, and they are losing money. Their guidance suggests that they could actually continue to lose significantly more money partially because of the diversification that they are making [and] some of the investments that they are making into new business, all of which are also low-margin businesses.”
Sanchez wonders how a company that had revenueof $19.34 billion in the most recent quarter could still lose $126 million rather than turn a profit. “With Amazon, people really have to question whether or not you can really make forward P/E in Amazon when they’re making money at a penny at a time,” she said, referring to a popular measure of valuation.
According to Ari Wald, head of technical analysis at Oppenheimer & Co., the charts agree with Sanchez that now is not the time to buy shares of Amazon.
“Going into the report [Thursday], we thought the shares had gotten ahead of themselves,” Wald said. “The market is agreeing with that assessment here. I think there could be some spillover momentum so I wouldn’t be touching the stock yet.”
Amazon’s shares were trading around $323 on Friday afternoon. Wald is looking at the $280 level for support.
“I think that’s a very important support level,” he said. “That was the low from earlier in the year. If the stock can get down there, I think maybe then the stock becomes so bad [that] it’s good.”
To see the full discussion on Amazon, with Sanchez on the fundamentals and Wald on the technicals, watch the above video.