Amazon: Bullish or Bull Crap?

NEW YORK (TheStreet) -- Shares of Amazon (AMZN) have slightly recovered after selling off at the end of January following disappointing fourth-quarter earnings results. The stock opened today at $348.80.

Bears are finally exhaling and claiming victory, as the stock is down about 14% since reporting earnings and down almost the same amount in 2014. So this is the question we're begging to have answered: Is this the beginning of the end, or another buying opportunity?

There's something you need to understand about Amazon and the bears. 

They have solid points when it comes to valuation. I mean, the company isn't profitable. Or at least in a meaningful fashion. So for it to trade at an extreme multiple simply makes no sense. 

But it's so important to consider who is buying, and not necessarily why they are buying. Valuation-wise, it makes no sense for the stock to be trading so high. At all.

But because people believe in CEO Jeff Bezos and because people believe in the company's long-term success, it continues to squeeze higher and higher, mercilessly torturing the bears the entire way. 

Honestly, until we actually see the whole story at Amazon unwind before our eyes, I don't want much to do with the short side of things. I'd rather be long Amazon after selloffs, or flat when shares have gone too far, too fast. 

Simply put, the stock has been a beast! Sure, it's off some 14% year-to-date, but there's no reason to fuss about that. Just like there's no reason for the bears to cheer like they've won the Super Bowl.

The stock's up a whopping 449% in the past five years, and 86% in the past three years. That beats the pants off both the S&P 500 ETF (SPY) and Nasdaq ETF (QQQ) in either time frame. Yet the doubters have been making the same argument the whole way up.  

Of course I agree that the valuation is completely outrageous. Who wouldn't? But some stocks will continue to trade without any connection to traditional valuation metrics, and that's very important to understand. The market will have its way until it changes its mind, no matter how right you are and how much you fight. You're a drop in the ocean compared to the market's forces. We all are. 

Think Netflix (NFLX), Tesla Motors (TSLA) and Twitter (TWTR). All great companies. All cool products. But they all trade at insane valuations on the hope that one day they'll be making mad profits. 

If Bezos is good at one thing, it's bolstering investor sentiment. When he talks, you just believe. You say, Yeah, that's a great idea!

For starters, Amazon could simply raise the price of its beloved Prime service.

For $79 per year, customers get access to TV shows and movies (but not all of them), can borrow Kindle books, and of course, have free two-day shipping. The service was introduced in 2005 and has yet to see a price hike. 

But in the most recent conference call, it was made apparent that that may change, as it should. Look at Costco Wholesale (COST). The company has hiked its membership fees twice in the past eight years, (12% in 2006 and 10% in 2011).

Still, the company experienced very little churn. Although one could argue that customers have to have a Costco membership to shop there, which is not the same case with Amazon.

Even with a membership hike to the $99 to $119 price range, Amazon runs the e-commerce world. When I want to buy something, the very first place I go is Amazon. It's amazing the selection it carries. 

And it's not just in the U.S. The company is rapidly moving overseas, and is quickly unraveling the successful business models for most bricks-and-mortar retailers that have worked for decades. 

If the online shift wasn't all that apparent before, it certainly was during the most recent holiday season. Sure, Amazon missed earnings, but the shift to online and mobile is happening in a big way. In other words, Amazon might have lost the battle (earnings-wise), but it's winning the war. 

In my article "Bricks and Mortar Died. Where Did It Go?" I detailed this enormous shift to online spending. And guess which company is leading the charge?

Of course, Amazon. 

So why fight it? There's an incredible shift going on in the way consumers spend their money, and more importantly, where they spend it. One day the market may change its mind, and decide valuation matters. But the stock will be down a whole lot more than this, meaning that day is not yet here. 

So it's up to you. You can frustratingly celebrate with the bears on a 10% gain after a 20% or 30% shellacking, or you can just buy the stock on steep pullbacks, ride it up and then wait for the next opportunity. 

Amazon might go lower, but it'll be standing on $400's doorstep before you know it.

At the time of publication, the author held no positions in any of the stocks mentioned.

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

-- Written by Bret Kenwell in Petoskey, Mich.

Bret Kenwell currently writes, blogs and also contributes to Robert Weinstein's Weekly Options Newsletter. Focuses on short-to-intermediate-term trading opportunities that can be exposed via options. He prefers to use debit trades on momentum setups and credit trades on support/resistance setups. He also focuses on building long-term wealth by searching for consistent, quality dividend paying companies and long-term growth companies. He considers himself the surfer, not the wave, in relation to the market and himself. He has no allegiance to either the bull side or the bear side.

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