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Do Not Buy Amazon Stock Ahead of June’s Prime Day

Prime Day is perhaps Amazon’s most important sales event in the calendar. But the Amazon Maven argues that buying Amazon stock ahead of it may be a bad idea.

It is now confirmed: Amazon’s (AMZN) - Get Free Report Prime Day will likely take place on June 21 and 22 (click here to see some of the best deals). This will be the seventh annual edition of an event that, in only two days, produced nearly 10% of the company’s total holiday quarter revenues in 2020 (ex-Amazon Web Services).

The more relevant question for investors: is Amazon stock a buy ahead of this important date for the e-commerce giant? Or will this prove to be a “sell the news” event? The Amazon Maven dives into the subject, and reaches some unexpected conclusions.

Figure 1: Amazon's Prime Day will likely take place on June 21 and 22.

Figure 1: Amazon's Prime Day will likely take place on June 21 and 22.

What history says

It is unquestionable that Prime Day has been a substantial generator of revenues for Amazon. It is estimated that single-day sales surpassed $400 million, or 0.4% of annual revenues, when the program was introduced, in 2015. Last year, Prime Day likely drove over $10 billion in sales, or nearly 3% of the company’s annual top line – probably more than Black Friday and Cyber Monday combined.

But how about Amazon stock? Has it performed as well around Prime Day? To answer this question, I propose the following exercise: compare the one-month forward return in AMZN shares (1) after Prime Days against (2) any given day since 2015, i.e. the “control group”.

The chart below on the left shows that, maybe surprisingly, Amazon stock’s performance following Prime Days has been unimpressive: median of 1% vs. more than 3% during any given day in the past six years. It looks like “sell the news” has been a bigger theme around Prime Day than “buy the sales spike”.

Figure 2: Median 1-month forward return in AMZN.

Figure 2: Median 1-month forward return in AMZN.

The chart above on the right provides a bit more context. Despite the 1% in post-Prime Day stock returns, AMZN’s performance has swung widely: from a one-month gain of nearly 15% in 2015 to a loss of almost 10% in 2019. Also note the trend: the stock performed best after the first Prime Day ever, when the event was still a novelty, but progressively worse since then.

There is one last piece of information that I find relevant. Since the creation of Prime Day, Amazon stock never finished a year in the red. A streak of six consecutive years of gains had never been achieved before. Maybe, Prime Day has been a bullish development for AMZN in general, just not so much around the event date itself.

Buy Amazon stock? A step back

To be sure, Amazon stock’s performance in the next few weeks will not be solely dependent on Prime Day. In fact, equities have been moving very much in line with broader, macroeconomic themes lately, including inflation and interest rates, more so than company-specific factors.

Even Prime Day itself could be eclipsed by other Amazon-specific developments. As I discussed recently, the recent acquisition of MGM and the upcoming CEO transition can both be meaningful catalysts to nudge AMZN higher or lower. 

Beyond the month of June, I believe it is important to take a step back and think of Amazon stock ownership from a higher level. This is particularly relevant for long-term investors, less so for short-term traders.

On the plus side, Amazon remains on track for world domination. The company’s outstanding results have certainly been aided by the stay-at-home forces of the past 18 months, but they also seem to ride the right long-term themes of digital commerce, media consumption and cloud adoption.

On the minus side, valuation remains rich and Amazon stock currently stands within striking distance of its September 2020 all-time high. In a recent study, I concluded that buying AMZN during sharper corrections has led to substantially better one-year returns than buying it near peaks.

All considered, I would not be shocked to see sell-the-news pressures on Amazon shares following June’s Prime Day, more so than upside support. However, keep in mind that the decision to invest in AMZN should transcend the near-term implications of doing so.

Twitter speaks

Of course, my caution towards Amazon stock is only a near-term concern. I asked Twitter if others shared the same opinion. Here are the answers.

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(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content. Thanks for supporting The Amazon Maven)