Our Analysis of Amazon.com, Inc. (AMZN)

Over the last couple of weeks, we have shared our "Quantamental" analysis of two of the stock market's most popular stocks: Tesla Inc. (NASDAQ: TSLA) and NVIDIA Corporation (NASDAQ: NVDA).

This approach combines "quantitative" analysis, which consists mainly of technical analysis, with "fundamental" analysis of the company's operating metrics.

We developed this approach over our thirty years as professional investors and have simplified it to three simple analyses that can cover 90% of the analysis of any individual stock.

We will apply this analysis to one of the most popular stocks each week in HX Daily.

This week, we will discuss another popular stock—e-commerce (and everything else) giant Amazon.com, Inc. (NASDAQ: AMZN).

Our analysis below is not a formal recommendation on the stock. Based on our analysis, we are giving our views of what will most likely happen from here.

Here is the analysis…

1. Technical Analysis

AMZN is interesting because it combines elements of both TSLA and NVDA.

With TSLA, we saw significant RSI signals, but it was a stock in a downtrend. We were hesitant to believe in any follow-through, especially with a very overbought RSI.

When we analyzed NVDA, it was not overbought but rather trading in the middle range of the RSI. Unlike TSLA, though, it had a very well-established uptrend.

AMZN combines both.

First, look at the five-year chart of AMZN…

The stock has had a wild ride. It rallied swiftly during COVID-19 as the entire world moved to buying online.

It was then a significant victim of the post-COVID "hangover" that occurred in 2022. The stock was cut in half from last 2021 to late 2022.

After bottoming, though, in December of 2022, the stock has been a beast! It has doubled and hit a new all-time high a few weeks ago.

The stock is definitively in an uptrend and showing accumulation. This is similar to NVDA.

Right now, though, the stock is also showing an attractive RSI signal. It has sold off with the other winners in this recent sell-off. Here is the recent chart along with RSI…

This is a great entry point on the chart. The shorter chart emphasizes the strong uptrend in the stock. Then, you can see the RSI chart on the bottom, which shows that it has come down from recently overbought levels.

We back-tested this level of RSI (below 38), and here are the results from the last decade…

This RSI level (38) is not THAT low. It has happened often (67 times) across the last ten years. Historically, though, buying at this level has had both a good positive hit rate and an absolute return.

This is an ideal time to buy AMZN stock from a purely technical perspective.

TECHNICAL ANALYSIS = BUY.

2. Earnings Revisions

Our readers know that we think the most vital driver of near-term stock price performance is whether companies beat numbers and see positive earnings revisions.

We refer to them as “earnings” revisions, but they can also be revenue revisions. We usually look at not only the most popular measure—earnings Per Share (EPS)—but also other measures, such as Earnings Before Interest, Depreciation, and Amortization (EBITDA).

For AMZN, the EPS revisions are most important, and here is the chart of those estimates…

We mentioned the post-COVID "hangover" in the stock price, which you can see in the earnings revisions.

In mid-2021, the company was expected to earn over $6.50 per share, but those estimates fell to a little bit more than $2.50 a year later. Since then, though, the estimates have recovered nicely, and now they are expected to earn over $4.50 per share.

This has coincided with the recovery of the stock.

It can also be seen in their results versus analyst expectations on their quarterly earnings. Here is that table…

You can see that the crushed number during COVID had some choppy results post-COVID but recently have seen to find their footing and are beating numbers pretty handily.

Something might change at some point, but a giant body like AMZN, when in motion, tends to stay in motion. We think they are likely to continue to have strong operational momentum.

EARNINGS REVISIONS = BUY

3. Earnings Growth

The final measure we focus on is the actual growth in earnings.

AMZN has been a great stock over the years, so it is not surprising that it has also seen some great earnings growth. Here is that table…

While AMZN is a highly profitable company now, you may have forgotten that it was not profitable for many years.

Again, you can see how COVID-19 affected the company. EPS doubled in 2020, but the company struggled in the post-COVID period.

Recently, though, they have shown some tremendous growth. If you look at where they were pre-COVID, they are now on track to grow EPS almost five-fold. No wonder the stock has done so well!

This is also quite different from the enormous earnings growth we discussed last week from NVDA.

We believe that AMZN's earnings growth is much more sustainable. They now have a diverse business. We recently saw this table…

Did you realize that 10% of their revenue comes from advertising? Or that one-third comes from OTHERS selling on their platform? That 5% comes from physical stores?

While online stores still make up most of their revenue, it is only by a small amount.

A diversified business with this scale and operating momentum will likely continue to demonstrate growth.

We think AMZN is attractive on this basis.

EARNINGS GROWTH – BUY

Conclusion

In our recent single stock analysis of TSLA and NVDA, we had nuanced views of both stocks.

We think TSLA could eventually recover and be an outstanding stock from here. We would wait until we see some operating results back up the stock movement.

NVDA is the other side of that coin. The operating results are historically significant, but we are concerned about their sustainability. We were worried about how overbought the stock was, but the recent sell-off solved part of that problem.

We think you can own NVDA but would keep a tight “operational” stop loss on the company. IF they miss numbers, there is a lot of downside.

AMZN is in a much better position than both. Strong operational performance, good earnings growth, and an excellent entry point in the stock right now.

If you are holding AMZN stock, we encourage you to keep holding it. If you want to buy it, now is an excellent time to get involved.