Last year, AMZN earned $596 million on $107 billion in revenues, a niggardly 0.6 percent net profit margin. Recently, when braced about this impecunious return, Bezos suggested that huge profits will be there in the long run after AMZN’s successes at creative destruction have driven competitors from the marketplace. However, a stock that can move up and down 100 points in a week or 40-plus points in one day fails to float my flotilla.
AMZN’s fundamentals remain strong, but it’s gutsy to speculate with a stock that trades at 432 times earnings. If earnings or revenues miss their mark just by a tad, this stock could collapse like a sinkhole. Then Bezos would need a big tow truck to pull AMZN back up. At this level, investing new money is very iffy, and it’s going to take a lot of new investors to get AMZN back to your $692 basis. I don’t see a $692 price in the near future, and suggest you sell AMZN and lock in your loss. Frankly, if you keep your shares, your loss could quickly and unexpectedly become much larger.
On the flip side, product and quality acceptance, geographic expansion and Prime memberships continue to gain momentum for Amazon. So with overseas revenues accounting for 38 percent of sales, AMZN believes that it can earn between $4.18 and $8.57 a share this year on anticipated revenues of $130 billion. Wall Street is bullish on the stock. Piper Jaffray, Barclays, Deutsche Bank, SunTrust and others recommend AMZN as a “strong buy.” Unlike Facebook, Google, Microsoft, Apple and other popular high fliers with billions of shares, AMZN only has 485 million, and Bezos owns 84 million of them. And some of the largest and most popular mutual fund families — Fidelity, Vanguard, T. Rowe Price and American Funds — own 70 percent of the stock.
We are in a fickle market, and the AMZN sentiment is definitely bullish, but the risk is significant. Your loss is about $21,000, and you said, “I think I can handle it.” The operative word here is “think.” Could you handle a $40,000 loss?
Malcolm Berko addresses questions about stocks. Reach him at P.O. Box 8303, Largo, FL 33775 or mjberko@yahoo.com.