This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Must-See Amazon Charts: Downside Risks Outweigh Potential Gains

NEW YORK (TheStreet) -- Investors compare the risks and rewards of any given investment with relatively basic performance metrics for a good reason. They work. Growth rate, revenue and earnings multiples, gross and net margins, market share, dividend yield and payout, and short interest are examined closely to measure risk and reward.

Over time, on average, the basics work effectively to help shape a winning portfolio. I've heard and read many reasons why traditional valuation metrics no longer apply for certain high flyers over the years, but as a student of the markets for over 20 years, I've yet to find one that holds water.

The problem investors face is "over time" is usually much longer than most investors consider. It's the time beyond what investors consider a short-trend that gets some into trouble, even though in retrospect it shouldn't. Companies become overvalued when they become "loved" by the mob. The reasons for love are different for any given high-flyer, but the resulting emotional sentiment never changes. When investors become overly optimistic they extrapolate the existing trend into the future in total disregard of the evidence that refutes the likeliness or sometimes even the possibility.

Amazon (AMZN - Get Report) is one such company, in my opinion. TheStreet's Rocco Pendola recently chided me for my bearish Amazon opinion. After losing a six-month long wager that Amazon would trade at $200 per share before $300, we agreed to make it double or nothing at $400 and $200, a bet that I all but conceded to him just a few days ago. However, as I said to Pendola, I may lose a beer or two, but they will be purchased with gains from shorting if it moves above $400.

Of course, I don't know shorting above $400 a share will result in a profit. I don't need to because I work with odds, not prophecy. Since a picture is worth a thousand words, or so say, here are my primary reasons why I believe the downside risk isn't worth the potential gain. AMZN Revenue (Quarterly) Chart

This chart appears to support the bullish thesis. It's traversing from the bottom left to the top right, but companies don't put revenue in the bank (not for long anyway). It's the profits that matter. AMZN Market Cap Chart

1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
AMZN $389.51 3.71%
AAPL $127.60 2.28%
FB $83.09 2.87%
GOOG $535.38 2.16%
TSLA $205.27 -0.74%


DOW 18,034.93 +208.63 1.17%
S&P 500 2,100.40 +19.22 0.92%
NASDAQ 4,994.6020 +62.7870 1.27%

Partners Compare Online Brokers

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs