AMAZON ANALYSIS AND ITS GROWTH PROSPECTS
The relationship between business cycle and Amazon quotes has a low correlation. The picture below is an illustration of this background.
We see that the failure of quotes in 2015 signals the unreliability of building a strategy for trading a company’s shares based on the dynamics of the business cycle. Apart from this discrepancy, in general, the trends in the business cycle and stock quotes move synchronously, due to the connection with the wide market.
Appropriately to say that the US business cycle began to recover in November, but so far it is difficult to say whether this is a trend reversal, or a local correction with a further deterioration in the macroeconomic situation.
The following image shows a statistical estimate of the linear relationship between the S&P 500 and Amazon.
Amazon and S&P 500 are linearly linked.
Statistical indicators are close to unity, it means non-causal relationships are close. Appropriately to say that the beta coefficient of Amazon is 1.5. This indicates that the company's quotes refer to growing stocks that are ahead of the wide market, but carry increased risks. If the market is euphoric, then the demand for this type of stock is increased, which determines the growth rate of Amazon quotes.
The following picture shows that this type of asset (growing stock) is dangerous. And it shows the average annual dynamics of quotes from Amazon and S&P 500.
As you can see, statistical indicators signal the absence of correlation. It means that the dynamics of the Amazon stock is not related to the dynamics of the S&P 500 index, there may be discrepancies locally.
Now we are observing this. Since increased beta carries risks and markets are overheated for a long time, which distorts growth prospects, global capital is afraid to bet on this asset, since it carries the risk of a deeper correction with limited growth.
Macroeconomic situation
Valuation of cash flows into futures on the S&P 500 index of professional market participants traded on CME.
We see that professional participants no longer buy futures for a wide market and start selling, the indicator has come close to the quarterly average. S&P 500 is one step away from correction.
Conclusion on external factors
In the long run, Amazon shares have a chance of growth, but locally we see reduced interest in this asset. Combined with overbought broad market and high beta stocks, this stops us from shopping. Perhaps the company's valuation will change the picture.
Amazon Inc Analysis
Amazon.com Inc is a retailer of consumer products and subscriptions in North America and abroad.
It sells goods and content, purchased for resale from third-party sellers through physical stores and online stores. The company also manufactures and markets electronic devices, including Kindle e-books, Fire tablets, Fire TVs, and Echo devices. The company also provides the Kindle Direct Publishing online service, which allows independent authors and publishers to post their books in the Kindle store.
In addition, it offers programs which allows sellers to realize their products on their websites, as well as on their own branded ones; and programs with allow authors, musicians, directors, application developers to publish and sell content. In addition, the company provides computing services, storage, databases and other AWS services, as well as computing and storage, execution, publication and subscription to digital content, advertising and services. In addition, Amazon provides the Amazon Prime service, which provides free delivery of goods, access to broadcast movies and television episodes, and other services.
Comparison of financial performance of companies.
The PR (Price / Revenue) indicator reflects the ratio of the price per share to the company's income, in other words, how the company evaluates this market.
Since the end of 2018, the growth of this indicator has stopped, and there are even hints of a downward turn of this indicator.
Basic EPS shows the company's earnings per share, the higher this indicator, the better.
The value of EPS in the uptrend with a strong acceleration of growth in 2018. In the last quarter, the indicator decreased slightly, but there are no reason to worry about.
Return on Equity (ROE) shows the return on equity of the company and is the main indicator of assessing the effectiveness of management.
In the long term, this indicator is in the uptrend, the company's efficiency is growing, with the exception of the II and III quarter of 2019.
The Net Income Margin coefficient shows how much revenue the company actually receives from each dollar of sales.
The dynamics of the company's profitability follows the dynamics of the ROE indicator. The company's revenues are growing in the long run, and falling the last two quarters.
The company's sales are trending, updating highs and have a pronounced seasonal tendency to strong growth in the last quarter of each year, which is certainly associated with the New Year holidays and sales on Black Friday, and this year is no exception.
Sales growth rates from year to year (adjusted for seasonality) are positive, the forecast for the next 2 quarters is also up.
Conclusion on financial performance of companies
The company deals with retail sales of consumer goods and services, and therefore its sales depend on consumer sentiment and seasonality.
In the fourth quarter of each year, sales increased sharply due to increased demand on Black Friday, Christmas and New Year. And this year, strong sales growth is also expected.
In general, sales and earnings of the company have a pronounced long-term uptrend. Over the past few quarters, the company's revenues have declined slightly, so the company's quotes are slightly behind the general market now, but the financial statements have not given reason to worry about.
General conclusion
To summarize and rely on Santa rallies, both in stocks and in total consumer spending, a possible short-term, speculative purchase of Amazon stocks.
But we want to warn you about high beta coefficient carries both an increased opportunity to earn exchange rate differences and an increased risk in the event of a wide market downturn, therefore the risk of this transaction is very high, you need to be very careful about the risk.