This Amazing Stock Should Provide 10% Returns Minimum

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Maybe they should have named this giant retailer Amazing instead of 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 distributor, Netflix (Nasdaq: NFLX ) .

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 higher.

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 fundamentals.

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 other services.

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 year.

Despite, the weak earnings outlook, Amazon is in an enviable cash position with nearly $5 billion in available cash and no debt.

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 TradingAuthority.com:

http://www.tradingauthority.com/article/amazing-stock-should-provide-10-returns-minimum


-- 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.



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

© Copyright 2001-2010 StreetAuthority, LLC. All Rights Reserved.


This article appears in: Investing , Investing Ideas

Referenced Stocks: AMZN , NFLX

Melvin Pasternak

Melvin Pasternak

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