Learn how to look at investment opportunities in stocks like Amazon. (CANSLIM Method)
Listener question Friday!
One of the members of the Be Wealthy & Smart VIP Experience asked this question:
Do you have an opinion on Amazon stock? We live in the Seattle area and have watched Amazon change the entire landscape of Seattle. Because the fundamentals always say Amazon is too expensive, we never bought any stock, but you said not to worry about the PE ratio too much on growth stocks. What’s your thought on this hometown company?
What are some of the things to consider when looking at an individual stock to buy?
Consistency of earnings
C – Current quarterly earnings per share. Have they increased quarter over quarter in a year?
A – Annual earnings increases over the last 5 years?
N – New products, management and other new events. In addition, the company’s stock reaching new highs?
S – Small supply and large demand for stock? Acquiring their own stock?
L – Leader or laggard in an industry? Use relative strength as a guide.
I – Pick stocks who have institutional sponsorship by a few institutions with recent above average performance.
M – Determining market direction by reviewing market averages daily.
How does this apply to Amazon?
According to CNN Money: “Amazon posted a profit of $252 million for the third quarter, or $0.52 a share, falling short of consensus estimates for earnings of $0.78 per share. Its guidance for earnings in the upcoming quarter also came in below estimates.”
What new innovations do they have?
The company is also adding 26 fulfillment centers this year, compared to 14 last year.
Amazon Echo could be BIG.
“Bezos is fond of talking about the “three pillars” of the company’s business. Those include its e-commerce marketplace, the Prime subscription option and Amazon Web Services.”
“During an appearance at the Economic Club of New York on Thursday, Bezos said either the Echo or its TV division “could become a fourth pillar on its own.” – CNN Money
Consistency of earnings?
It may also be a reminder that investors always want more. For years, Amazon was rarely profitable for long. Now it has been profitable for six straight quarters — but apparently not profitable enough.
Jeff Bezos, Amazon’s founder and CEO, has traditionally focused on reinvesting all (or almost all) profits back into big bets like fulfillment centers, hardware, video streaming and cloud computing.
Amazon posted a profit of $252 million for the third quarter, or $0.52 a share, falling short of consensus estimates for earnings of $0.78 per share. Its guidance for earnings in the upcoming quarter also came in below estimates.
Do you want to have a short or long-term investment?
Could be moving to $1000 according to analysts.
What is the market capitalization?
Mkt cap $367.35B
Could this be the first trillion dollar company?
Yes. That’s a triple from here.
P/E ratio 194.22 – that means you are paying $194.22 for each $1 of earnings. Does that make sense?
Growth has already averaged 37.94% for the last 10 years.
Can that rate of growth continue? It would have to be historic.
Is that possible? Maybe. Could take over retailing for most retailers. There’s more competition coming I’m sure. They have other areas of business they are moving in. Those are also huge growth areas.
They are building warehouses and buying airplanes and the hard costs of that don’t thrill me.
Is it your best investment? No.
The time to buy the stock was 17 years ago like I did!
Would you rather have something that could triple or something that could rise 20 or 30 times?
Personally I don’t own the stock anymore. I do think it will reach $1,000. If I were going to pay that per share, I’d rather own priceline.com because it’s leveraging cyberspace and is not becoming physical.