Amazon's Plateau Is A Good Time To Buy

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Amazon's Plateau Is A Good Time To Buy

seekingalpha2021-04-13

Summary AMZN has plateaued in the past 6-8 months. The Wall Street consensus outlook is bullish, with substantial anticipated 12-month appreciation. The market-implied outlook (derived from options ...

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Comment（7）

KcTan
·2021-04-13
Going for next up trend
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1
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ItsRileyReid
·2021-04-13
Nice
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Khooec
·2021-04-13
good day
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3
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Khooec
·2021-04-13
hello everyone
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- Khooec:
  excellent
  2021-04-14
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- Khooec:
  good
  2021-04-14
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LeviStrauss
·2021-04-13
??
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WTurtle
·2021-04-13
Really?? Please like
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2
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acciacci
·2021-04-13
Oh lalala le la le lo
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Since then, over a period of almost 7.5 months, the stock has not surpassed this price and AMZN is currently trading at $3,379.08. For the year-to-date (YTD), AMZN has gained 3.54% vs. 10.39% in total return for the S&P 500. What are investors to make of thisloss of momentum? The simplest explanation is that the consensus market opinion is that the enormous gains of recent years have fully priced in the expected growth for a while, so the stock price is stabilizing for the time being and waiting for additional news. It is quite common for stocks to plateau for a run of months. Alphabet's stock, for example, has recently been essentially flat for extended periods between rapid gains. The same effect is observed with Microsoft.\nAMZN's fair price depends on the discount rate applied to expected future earnings. One contributor to the loss of upward momentum is rising rates. The 10-year Treasury yield was 0.693% at the end of August of 2020. Today, the rate is 1.68%. Increases in bond yields and interest rates reduce the value of a stock by increasing the discount rate applied to future earnings. The higher the P/E, the higher the sensitivity, because the value of growth-oriented stocks is more dependent on relatively distant future earnings.\nPrice history and basic statistics for AMZN (Source: Seeking Alpha)\nRather than attempting to contribute my own analysis of AMZN, this post compares two different consensus outlooks for the stock. The first is the consensus of Wall Street analysts. The second is the market-implied outlook, which is effectively the consensus opinion of the options market, as reflected in the prices at which call and put options are trading. The market-implied outlook (aka option-implied outlook) is introduced here, with links to the finance literature and an implementation by the Federal Reserve Bank. Comparing these two types of outlooks (the equity analysts and the traders), I form an overall rating.\nIf you are looking for a discussion of growth projections in various business lines and other bottom-up analysis, this post is not what you want. I sometimes get comments from readers that ask why I analyze stocks by comparing consensus outlooks rather than just writing about those for which I can claim some deep expertise. My answer is that I want to have tools to consistently analyze a wide range of securities in building a diversified portfolio, regardless of whether I know much about the underlying business model or not.\nWall Street Analyst Outlook\neTrade builds a consensus outlook that combines the views of 32 ranked Wall Street analysts who have rated and provided price targets for AMZN in the last 90 days. The consensus rating is bullish and the consensus 12-month price target is $4,103, which is 21.2% above the current price. There is a high level of agreement that the stock is expected to gain over the next year. Even the lowest price target is 9.32% above the current price.\nWall Street analyst consensus rating and 12-month price target for AMZN (Source: eTrade)\nSeeking Alpha's Wall Street consensus calculation is made up of 46 analysts and has a price target of $4034, slightly lower than eTrade's but still 19.4% above the current price. Not a single analyst gives the stock a rating of neutral or lower.\nThe attractiveness of the expected 12-month gain of 20% or so depends on the risk level and a measure of expected volatility is provided in the next section.\nMarket-Implied Outlook\nThe price of an option is the cost of making a bet that a stock's price will rise above (call option) or fall below (put option) a specific level (the strike price) over a certain period of time (between now and the expiration date). By analyzing the prices of calls and puts at a range of strike prices but the same expiration date, it is possible to calculate the probability distribution of returns that will reconcile all of the options prices. This probability distribution is referred to as the market-implied (aka option-implied) outlook. The market-implied outlook is the consensus outlook price return for a stock.\nI have analyzed options on AMZN that expire on January 21, 2022, providing a price return outlook for the next 9.3 months (between today and that date).\nMarket-implied price return probabilities for the period from today until January 21, 2022 (Source: author's calculations using options quotes from eTrade)\nThe market-implied price return outlook for AMZN is neutral, in that the probabilities of positive returns (the right side of the chart) are largely symmetric to the probabilities of negative returns of the same magnitude. There is no meaningful skew in the peak probabilities towards either positive or negative returns. The peak probability corresponds to a price return of 2.1% and the median is -0.5%. The annualized volatility for AMZN derived from this distribution is 30%.\nTo make it easier to see the relative probabilities of positive and negative returns, I rotate the negative return side of the distribution about the vertical axis (see below). If the distribution was perfectly symmetric, the Negative Return curve (red dashed line) would lie right on top of the positive return curve (the solid blue line).\nMarket-implied price return probabilities for the period from today until January 21, 2022, with the Negative Return side of the distribution rotated about the vertical axis (Source: author's calculations using options quotes from eTrade)\nThe closeness of these two curves, the high degree of symmetry, is very unusual for a high-growth stock with a P/E as high as AMZN's. I expect to see a markedly higher level of positive skewness. This lack of positive skewness makes the stock more attractive in that investors are not betting on high-return / low-probability outcomes. The slightly elevated probability of negative returns vs. positive returns for most outcomes is expected because investors tend to pay over fair value for downside protection because of risk aversion. There is slight positive skewness in the distribution, shown by the higher probabilities of large positive returns (>50%) relative to equal magnitude negative returns (where the solid blue line is above the dashed red line on the far right side of the chart).\nThe market-implied outlook for AMZN suggests that the options market views AMZN as a mature business that is not relying on low-probability outcomes to justify its valuation (the low skewness). In addition, the annualized implied volatility, at 30%, is moderate for an individual stock. The market-implied outlook suggests that the current price reflects a reasonable balance of potential for gain vs. risk.\nSummary\nAmazon's price has stabilized over the past eight months or so. The price is high compared to current and near-term expected earnings but is motivated based on the incredible growth trajectory for the company. The consensus outlook of the Wall Street analysts who follow AMZN is bullish and that the stock has room to run, with a consensus price target that is 20% above the current price. The market-implied outlook is neutral, with expected volatility of 30% (annualized) and very slight positive skewness. I have not previously analyzed a stock with anything close to AMZN's forward or trailing P/E that had comparably-low market-implied volatility and lack of positive skewness. The combination of the bullish analyst consensus and the neutral market-implied outlook (with moderate volatility) brings me to an overall bullish rating.","kind":"news","is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[{"id":345127197,"gmtCreate":1618290339019,"gmtModify":1704708669512,"author":{"id":"3577686030431719","authorId":"3577686030431719","name":"KcTan","avatar":"https://static.laohu8.com/default-avatar.jpg","vip":1,"crmLevel":6,"crmLevelSwitch":0,"idStr":"3577686030431719","authorIdStr":"3577686030431719"},"htmlText":"Going for next up trend","listText":"Going for next up trend","text":"Going for next up 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day","listText":"good day","text":"good day","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":3,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/345182473","repostId":1138318550,"repostType":4,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"},{"id":345182285,"gmtCreate":1618288007147,"gmtModify":1704708638624,"author":{"id":"3578908712005368","authorId":"3578908712005368","name":"Khooec","avatar":"https://static.tigerbbs.com/608a7e8f206f43ba68559785048615bf","vip":1,"hat":"https://static.tigerbbs.com/b073a07f77dbe6b3bec6b12311fde6bd","crmLevel":8,"crmLevelSwitch":1,"idStr":"3578908712005368","authorIdStr":"3578908712005368"},"htmlText":"hello everyone","listText":"hello everyone","text":"hello 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Please like","listText":"Really?? Please like","text":"Really?? Please like","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":2,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/345112663","repostId":1138318550,"repostType":4,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"},{"id":345136431,"gmtCreate":1618285726323,"gmtModify":1704708608914,"author":{"id":"3573293723353711","authorId":"3573293723353711","name":"acciacci","avatar":"https://static.tigerbbs.com/94bbb8987174e5a3f205eb84324da3c3","vip":1,"crmLevel":3,"crmLevelSwitch":0,"idStr":"3573293723353711","authorIdStr":"3573293723353711"},"htmlText":"Oh lalala le la le lo","listText":"Oh lalala le la le lo","text":"Oh lalala le la le lo","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":1,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/345136431","repostId":1138318550,"repostType":4,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"}],"hasMoreComments":true,"newsSizeData":{"likeSize":31,"commentSize":7,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false}}