Amazon. com, Inc. (AMZN): Will the low profit margin model work?

CC-BY-2.0, via Wikimedia Commons
CC-BY-2.0, via Wikimedia Commons | Source

The Amazon story continues

Investors question for how long and why doesn't the company make money. What is important is that the stock appreciated 52.39 percent in 2012. Cyber Monday last year reflected the increasing popularity of shopping online for convenience and lower prices. There are still challenges for Amazon in its cost management and big name competitors.

Amazon Stock return compared with the S&P 500 in 2012

Source

Seeking Alpha post

Before I delve deeper into Amazon stock, I want to say here that I am extremely proud of becoming an official Seeking Alpha contributor. It was my first attempt and I did get a lot of comments that wasn't too appealing. But hey, I love constructive feedback and I will work on it so that I will get more positive and 'I like your analysis' sort of comments.

Low margins giving for high growth figures

When looking at Amazon on Google Finance, the P/E ratio of 3679.06 jumps at you. I just want investors to know that this extremely high P/E isn't necessarily a bad thing. The thing I wish to highlight here is an estimate of the global e-commerce market in 2016 which is expected to be $1 trillion according to Morgan Stanley analyst Scott Devitt.

Significant Costs and Competition

Investors want to know when this company will start to prioritize making money as its objective. eBay (EBAY) and Wal-Mart (WMT) are stepping up their game in offering same-day delivery. Furthermore, Best Buy (BBY) and Target (TGT) want to deter “showrooming” by matching prices with their online competitors.

Competitors are spending lots of money to gain an advantage in products and services that Amazon is offering. Take Netflix (NFLX) for example, the internet streaming giant spends $2.5B on content costs annually; an avenue that Amazon spends only $700M but which is still staggering even for a company the size of Amazon (market cap - 122.52B).

Technically Speaking

Moving Average Convergence Divergence (MACD) is great for identifying trends.
Moving Average Convergence Divergence (MACD) is great for identifying trends. | Source

This 3-month Amazon stock chart looks good for chartists and Amazon bulls (a rarity these days) will be well pleased; myself included. MACD is a great tool for technical analysts. The MACD has crossed above the signal line and this shows a bullish sentiment heading into trading on Friday January 18, 2013.

The bears want to say that AMZN is heading to a less prosperous future, but the fact is that the stock has broken above its 50 day moving average and has remained over its 200 day moving average. Its been going nowhere but up in the long-term trend.

Bottomline: Amazon has a "buy" rating

Amazon is doing something right if most research analysts are rating the stock as a "buy". There are finance titans like Goldman Sachs and Bank of America-Merrill Lynch who see the stock appreciating further with price targets in the $300s.

Analyst Recommendation Trends

 
Current Month
Last Month
Two Months Ago
Three Months Ago
Strong Buy
12
12
13
13
Buy
15
17
17
16
Hold
10
12
12
12
Underperform
1
1
1
1
Sell
0
0
0
0
Source: Yahoo Finance (http://finance.yahoo.com/q/ao?s=AMZN+Analyst+Opinion)

This is just the first of many equity research reports here. I want to give you equity research reports on Google (GOOG) and eBay (EBAY) by the end of this month.

Stay tuned for the down low on those hot stocks.

More by this Author


Comments 3 comments

Bethaleg profile image

Bethaleg 3 years ago from Minnesota

Its all over my head LOL but sounds like you know your stuff! I'm sure investors will find your information useful.


vinayak1000 profile image

vinayak1000 3 years ago from Minneapolis Author

Hey Bethaleg. Thanks for the encouragement!


John 3 years ago

dude that P/E is astronomical and I don't see how AMZN can sustain fast enough growth to justify it even though you make some good arguments.

    Sign in or sign up and post using a HubPages Network account.

    0 of 8192 characters used
    Post Comment

    No HTML is allowed in comments, but URLs will be hyperlinked. Comments are not for promoting your articles or other sites.


    Click to Rate This Article
    working