To buy the Amazon post third quarter earnings report stock price dip or not to buy? That is the million dollar question.
The data suggests to pull the trigger before it’s too late.
Amazon’s (AMZN) stock price has dropped in four of the past six years on the day following its third quarter earnings, points out Jefferies analyst Brent Thill. The company’s third quarter earnings report is often very volatile as the digital beast spends aggressively ahead of the holiday season. That usually doesn’t jibe well with always inflated expectations on Wall Street regarding Amazon’s profits.
This go around looks to be no different. Amazon shares fell 6% in pre-market trading on Friday as third quarter earnings badly whiffed consensus forecasts, coming in at $4.23 a share versus the $4.58 a share expected. Profits were held back by Amazon’s $800 million investment in the expansion of one-day delivery services. Meanwhile, Amazon Web Services sales growth slowed to 35% versus 37% in the second quarter. Amazon Web Services (AWS) also saw its profit margins come under pressure amid increased competitive activity in cloud services.
The company warned on fourth quarter profits, as it prepared to spend $1.5 billion more in its one-day delivery rollout.
But based on Thill’s research, the third quarter pullbacks in Amazon’s stock is most often the time to buy. Amazon’s stock has gained each year in the following 90 days after negative reactions (four of the past six years) to its third quarter earnings, returning an average of 6%. Thill’s research looks at the last six years of performance. The stock has outperformed the Nasdaq Composite by an average of 100 basis points. Including the two years out of the past six where Amazon’s stock rose following third quarter earnings, the stock has returned an average of 8% in the following 90 days and outperformed the Nasdaq by 500 basis points.
Thill continues to rate Amazon’s stock at a Buy with a price target of $2,180. Makes sense, per the data.