Retail online giant Amazon Inc. has been the focus of intense investor speculation due to its pending acquisition of Whole Foods (WFM). However, those who have marked Amazon (AMZN) for a short position are being short-sighted and undoubtedly fail to see the opportunity to accumulate a position for solid long-term growth. Amazon’s downward momentum is not fundamentally sustainable, and its upward movements will be generated by high volatility within bid-ask prices resulting in a short squeeze.
AMZN, currently boasting a stock capitalization of nearly $500 billion, was founded in 1994 and is headquartered in Seattle. The company engages in the retail sale of consumer products and service subscriptions in North America and internationally. From its humble inception focusing expressly on books, AMZN has expanded into unanticipated retail segments such as artificial intelligence, food, music, media content, publishing, manufacturing electronic devices and consumer products.
AMZN’s June 2017 quarterly report indicated a 25% increase in its revenue to $38 billion while its operating income slid 51% to $628 million (adjusting for periods of earning expansion with increased investing). AMZN’s recorded capital investment comprised of its yearly capital expenditure of $2.5 billion (up 46%) and its capital leases such as property and equipment — up 50% to $2.7 billion — has astonished the street. These numbers are indicative of AMZN’s demonstrative efforts to reinvest and refine its shipping capacity, digital video segment, Echo device and affordable cloud services solutions.
Those who hold onto traditional methodologies and try applying them to AMZN fail to understand that AMZN has never followed a traditional business model. They are expecting corrections and retractions similar to other stocks, rather than embracing AMZN’s 20-year proven model as sufficient evidence that AMZN is different and has a unique growth metric. AMZN’s surprising acquisition of Whole Foods only serves to provide further support that the company has not topped off, and will continue with its forward momentum.
This all has implications that will boost AMZN’s bottom line. Even in the face of a potential failure to acquire Whole Foods and expand its physical offerings, Amazon has proven itself capable of handling defeat, as it has with other failed expansion attempts (i.e., AMZN’s Fire phone). AMZN’s window for investors to purchase will eventually shut as AMZN continues to evolve and reshape the future for both its shareholders and the world. Hence, keeping AMZN in your portfolio as a long-term growth solution is a smart and lucrative future investment.
AMZN has broken the traditional valuation model since 1995 from its sporadic profitable quarters versus the belief of sacrificing profitability for growth. Its technical outlook indicates a status of reinforcement rather than divestment due to its P/E ratio dropping to low triple digits from a commanding high triple digits and has been on a clear pattern of ascension since 2016.
Continually trading above its 50- and 200-day moving average, AMZN has been a picture of consistency leading to its rise through early June when its price temporarily breached $1,000. A sell-off has held above its July low near $950.
Sporadic correction and retraction operating above 50-day MA may challenge support below this level, perhaps testing $910. Shorts , in general, re difficult to master because of the scarcity of float/liquidity, requiring a contrarian sense of objectivity and Amazon’s business model is equally contrarian by its nature. In the context of the market, AMZN is most solidly a long position and provides a unique opportunity for any portfolio accumulation. AMZN may not have reached the low of this correction, but there is more room on the upside.
We recommend buying AMZN between $970 and $988 with a near-term objective of $1,108. Longer-term, we think that AMZN can reach $1,250. A drop below $903 would indicate further weakness, but AMZN will be back above the $1,000 mark relatively shortly.