Maybe they should have named this giant retailer Amazing instead
Amazon.com (Nadaq: AMZN)
. The story is truly nothing less.
From its 1997IPO price near $1.50 (adjusting for stock
splits),shares gained more than 6,900% in less than two years,
skyrocketing to a high near $105 by 1999.
In these early years, the company operated exclusively as an
online book retailer. Able tooffer more selection than its
store-based competitors, Amazon became one of the first big
Internet success stories, showing you didn't need bricks and mortar
to be a successful retailer.
But as the dot-com period turned into the "dot-bomb" era,
skeptics fled the stock. Amazon plummeted to a low near $7 by 2002.
While many online spaces went completely under, Amazon managed to
stay afloat through innovation anddiversification .
The world's largest online book retailer turned its attention
first to entertainment media throughCDs and DVDs, and then data
storage. Today, Amazon is the biggest cloud service provider on the
planet. It's also one of the largest tablet makers.
Fast forward 10 years and shares today are again trading near an
all-time high around $260. And the company looks poised to grow
further. Analysts in the tablet industry expect Amazon's new Kindle
e-book device -- which has an attractive price point and favorable
reviews -- to push the company further ahead.
Additionally, a recent licensing deal with the private media
channel Epix will give Amazon customers online access to movies and
TV shows from some of the largest providers in the film industry.
This latest move launches Amazon into the territory of online movie
From a technical perspective, these growth avenues are helping
push the stock up.
AMZN has been on amajor uptrend for the past three years. In
October 2011, shares hit a high of $246.71, but lost momentum at
this resistance level, falling to a low of $166.97 by December.
Clinging to support, marked by the intersection of the major
uptrend line, shares struggled for several months to move
But, in April 2012, the stock jumped nearly $50 in one week,
forming a large "flagpole" in an overallflag formation . The
following several weeks of trading activity created a
downward-sloping pennant formation, typical of the flag pattern.
Typically, flag formations resolve bullishly.
Sure enough, when the flag pennant was completed, shares started
climbing. In early July, an accelerated uptrend line formed around
$210. The stock has been inching higher since.
In late August, shares stumbled at $246.71 resistance, but
during the first trading week in September, the stock managed to
break past this resistance level, completing a very smallascending
triangle in the process. The triangle was marked by the accelerated
uptrend line and $246.71 resistance. And during the Sept. 10
trading week, shares pushed even higher.
According to themeasuring principle for a triangle -- calculated
by adding the height of the triangle to the breakout level --
shares could reach a newprice target of $287.03
($246.71-$206.39=$40.32; $40.32+$246.71=$287.03). At current
levels, this represents 10.7% returns. However, with nooverhead
resistance, the stock could surge much higher.
Thisbullish technical outlook is supported by strong
As the highest grossing retailer in the world, Amazon's sales
are impressive. In 2011, the company netted $48.1 billion in
revenue, up about 40% from $34.2 billion a year earlier.
Approximately 60% of 2011 total sales were from electronics and
general merchandise, 37% of revenue was generated from
entertainment media, and the remaining 3% from cloud computing and
For the upcoming quarter, to be reported Oct. 22, analysts
project increased tablet sales will help drive revenue up 28%, to
$13.9 billion, from $10.9 in the comparable year-ago period. For
the full 2012 year, analysts expect revenue will surge 31% to $62.8
billion, from $48.1 last year.
Theearnings outlook is another story, but with this stock, as
with many growth stories, traders seem to pay more attention to
revenue than earnings growth. Despite strong revenue growth,
earnings growth projections remain weak due to high capital
expenses, such as investments in new warehouse space. For the
upcoming quarter, analysts project earnings will dip into the
negative, with a loss of 8 cents, down from $0.14 in the comparable
year-ago period. For the full 2012 year, the 36 analysts following
the company expect earnings to drop to 77 cents, from $1.37 last
Despite, the weak earnings outlook, Amazon is in an enviable
cash position with nearly $5 billion in available cash and no
Amazon's current growth projections are based on the expectation
it will hold its own in the tabletmarket and will become a more
dominant force in online movie distribution. If both of these
avenues were to fail, Amazon's growth would be curtailed. However,
the company has a strong history of producing high-quality products
used by more than 30 million customers worldwide. It's likely the
company will keep developing products and services that appeal to
its wide customer base.
Action to Take -->
Buy AMZN at $260.93 or less. Set stop-loss at $246.69, just below
current support. Set initial price target at $287.03 for a 10% gain
within three months; however, prices could go much higher
This article originally appeared on
-- Dr. Melvin Pasternak
Melvin Pasternak does not personally hold positions in any
securities mentioned in this article. StreetAuthority LLC does not
hold positions in any securities mentioned in this article.
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