nasdaq
Two days from now, Amazon releases its Q2 2020 earnings, and the market is on a limbo already – Amazon share price trades well above the 3k mark, being one of the key stocks driving Nasdaq 100 higher. In fact, together with Tesla share price, Amazon is responsible for the index reaching a new all-time high after the panic selling in March.
Many voices call for a tempered view on Amazon. While the business model exploded due to a new work-from-home generation, it trades at high-sky valuations – 152 times P/E ratio when compared with 15.9 sector median, or over 860% more than the median. Still bullish?
Investors’ race to own shares in one of the most lucrative companies in the world is almost unprecedented. If only the Tesla share price will not be here to remind of the contrary.
The business model appeals to everyone, and diversification helps too. When thinking of the Amazon share price, the typical retail trader has in mind the online store alone. However, this is a company earning a big chunk of its revenues from its cloud-services arm, AWS. Moreover, it recently challenged giants Google and Facebook in the online advertising arena – and gaining market share by the day.
Its recent announcement of acquiring Zoox, a robotaxi company, further diversifies the business portfolio, spreading the risk as much as possible. Just like Google did back in the day.
Amazon’s ability to turn every major cost into a source of revenue is nothing short of amazing. In the last decade, the company invested over $18 billion to drive such changes, with much success.
Notably, investors are well aware of it. Otherwise, how to explain the Amazon share price over $3000?
Two things are worth keeping an eye on when the company releases its Q2 2020 earnings two days from now. First, the Amazon Prime members number. This is a number made public only recently, and every year so far, Amazon added new prime members – against a fee, obviously. Second, the company missed its EPS in the previous quarter – will it repeat the “performance”?
The question every investor should ask when looking at the current Amazon share price is what is the time horizon for an investment? At the current valuation, a long-term investment may make sense. However, on a medium to short-term horizon, the risk is that the Amazon share price will lag the market.
Apart from the dip in March, Amazon share price action evolved in a rising channel. No matter what, the price followed the path religiously.
What next for both bulls and bears?
Bears want to see a break for the rising channel. The means a move below the 3k level, targeting 2.2k (previous resistance for the year turning into support) with a stop at the most recent high before the break lower.
Bulls do not need much to keep profiting from the Amazon share price. As long as the market remains in the rising channel and keeps the series of higher lows, the bullish path remains clear. Buying in the lower half of the rising channel with a stop loss at the previous higher low and targeting a new higher high still makes sense.
