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Amazon Shares Are Under Pressure on Earnings, Valuation, Technicals

NEW YORK (TheStreet) - (AMZN - Get Report) stock was on a momentum run-up from its May 9 low at $284.38 to its pre-earnings high at $364.85 on July 24. Investors immediately began to dump shares like a crashing drone after the closing bell on July 24 on a huge earnings miss.

The company missed analysts earnings per share estimates by 14 cents reporting a loss of 27 cents. This hurts when a stock has a 12-month trailing price to earnings ratio at 853.7 and does not pay a dividend.

Amazon appears to be over-expanding in constructing fulfillment centers. I live in Tampa Bay, Fla., and back in October the company announced that it would build two warehouses in the area. One warehouse is just off I -75 in Ruskin and will soon be delivering small consumer products from books to electronics. The second is being built in Lakeland and will focus on backing and shipping large items such as TVs.

The good news is that Amazon began hiring employees for these fulfillment centers in May and as many as 1000 jobs will be created. The bad news is that Floridians shopping on-line through have been paying sales taxes since May 1. Time will tell whether or not sales will be hurt by taxes.

These fulfillment centers remain under construction and jobs are still available.

Let's take a look at Amazon's daily chart:

Courtesy of MetaStock Xenith

Looking at the right side of the daily chart for Amazon ($318) the stock was well above its 200-day simple moving average at $349.61 with a close at $358.61 on July 24. The open on July 25 was below its 21-day, 50-day and 200-day simple moving averages at $341.43, $328.04 and $349.61, respectively.

Amazon began 2014 setting an all-time intraday high at $408.06 on Jan. 22. Investors first became concerned about valuation as the stock fell below its 200-day SMA on April 3 to a 2014 low at $234.38 on May 9. From high to low was a decline of 33%. Momentum returned to the stock and reversed on a dime after the close on July 24.

Let's take a look at Amazon's weekly chart:

Courtesy of MetaStock Xenith

The weekly chart for Amazon is negative with its five-week modified moving average at $329.72 with its 200-week simple moving average shown in green at $250.51 The 12x3x3 weekly slow stochastic is declining at 73.01 but would have become overbought above 80.00 on a positive reaction to earnings.

The stock opened on July 25 below semiannual and annual pivots at $344.36 and $334.95.

Investors looking to buy Amazon shares should be patient and consider using a good 'til canceled limit order to buy weakness to annual value level at $259.67.

Investors looking to sell Amazon shares should consider using a good 'til canceled limit order to sell strength to the annual pivot at $334.95.

At the time of publication, the author held no positions in any of the stocks mentioned, although positions may change at any time.

Follow @Suttmeier

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff

TheStreet Ratings team rates AMAZON.COM INC as a Hold with a ratings score of C. TheStreet Ratings Team has this to say about their recommendation:

"We rate AMAZON.COM INC (AMZN) a HOLD. The primary factors that have impacted our rating are mixed ? some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its robust revenue growth, largely solid financial position with reasonable debt levels by most measures and expanding profit margins. However, as a counter to these strengths, we also find weaknesses including unimpressive growth in net income and weak operating cash flow."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The revenue growth came in higher than the industry average of 0.4%. Since the same quarter one year prior, revenues rose by 23.1%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
  • Although AMZN's debt-to-equity ratio of 0.29 is very low, it is currently higher than that of the industry average.
  • AMAZON.COM INC has experienced a steep decline in earnings per share in the most recent quarter in comparison to its performance from the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, AMAZON.COM INC turned its bottom line around by earning $0.58 versus -$0.10 in the prior year. This year, the market expects an improvement in earnings ($1.09 versus $0.58).
  • Net operating cash flow has declined marginally to $862.00 million or 2.04% when compared to the same quarter last year. Despite a decrease in cash flow AMAZON.COM INC is still fairing well by exceeding its industry average cash flow growth rate of -16.40%.
  • The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Internet & Catalog Retail industry. The net income has significantly decreased by 1700.0% when compared to the same quarter one year ago, falling from -$7.00 million to -$126.00 million.

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