Amazon.com, Inc. Redux: Third-Quarter Sales Boost Broader Market Sentiment
Top-line sales growth for Amazon.com, Inc. (NASDAQ:AMZN) surprised the market so much, it actually gave a boost to broader market sentiment. The company’s third quarter was so well-received that shares of AMZN stock leaped to over $600.00 a share from $565.00.
It was a tremendously good day for shareholders. Amazon.com stock has once again doubled in value on the stock market. And that’s just from the beginning of this year.
It’s quite possible that Amazon.com stock will turn out to be one of this year’s best momentum trades. And it’s all on a mishmash of profitability. This position remains expensively priced and there’s no consistency to the company’s bottom line. But that doesn’t seem to matter to the Street.
Surprising Domestic Strength is this Sector’s Untold Story
For the most part, Amazon.com’s third-quarter sales strength came from stronger unit volume of discounted electronics.
North American total sales (which represents about 60% of the company’s total business) improved 28% comparatively in the third quarter of 2015.
Electronics and other general merchandise are the largest category seller by far. Amazon.com’s “Fire” tablet is the company’s number one seller for a new launch product.
The company continues to invest heavily in new technology (and technology acquisitions), which has a significant impact on the bottom line.
This makes earnings predictability very difficult as evidenced by Amazon.com’s 2015 fourth-quarter operating income guidance of a whopping range between $80.0 million and $1.28 billion.
Sales in the current quarter are expected to grow 14% to 25% over the fourth quarter of 2014 to between $33.5 and $36.8 billion, according to the company.
And while currency translation remains a problem with the stronger U.S. dollar, Amazon.com’s numbers are seemingly good enough for the Street.
In the absence of shocks, this position has solid upside potential on a very near-term basis. But everything is still vulnerable in a market at its high.
The chart for Amazon.com is featured below:
Chart courtesy of www.StockCharts.com
Large-cap technology continues to be the stock market leader currently and that’s a net positive approaching the end of the year.
But industrial businesses are clearly revealing slower business conditions domestically and abroad. And this isn’t just because of currency translation.
Share prices for railroads, chemical companies and industrial goods businesses are now well off their highs. They clearly demonstrate the bull market’s maturity.
About a dozen big-cap technology stocks (including pharma/biotech) are keeping this market together in what is a decelerating global economy.
How long can this last? No surprise; it depends on the Fed.
The market still seems content with Amazon.com’s top-line growth story, as opposed to the company’s earnings unpredictability.
This works in bull market conditions with the main indices bouncing off their highs. But it’s the continuing conundrum for Amazon.com stock.
In flat market conditions, which I think we’ll get the next few years, earnings have to produce for individual share prices to accelerate.