BY MARK SEBASTIAN
February 24, 2024
Each week, my team will give an overview of a stock. I’ll discuss fundamentals, Licia will analyze the charts, and AG will break down the volatility.
Have a stock YOU want us to review? Email my team here. – Mark
Hey Trader,
Jeff Bezos is dumping Amazon stock at a torrid pace since his move to Florida (smart move my friend).
Every time the stock tries to rally, there is good ole Jeff dumping his stock….with the stock trading about 10% off the all time high is this a chance to buy Jeff’s sales?
In addition…AMZN is joining the Dow Jones Industrial Average…historically a kiss of death for the stock …Lets break it down…
Amazon.com Inc (Ticker: AMZN)
Did you know Amazon is worth 1.74 trillion dollars? I did not, Ill be honest …I knew it was a trillion dollar company but I had it pegged at more like 1.1-1.2 trillion.
Doing a fundamental analysis of Amazon is difficult…its like trying to break down the finances of a wealthy business person that writes off everything he or she can to avoid paying taxes….that is basically what Amazon does.
If the company wanted to…I firmly believe Amazon could drop its PE of 57.83 down to the low 20s. This is a company that purposely loses money on retail to gain market share. So let’s look at some of the other metrics.
Amazon has plenty of cash, has nice positive cash flow, in 2023 the company produces over 36 billion in Free Cash Flow…that is nothing to sneeze at.
Debt to equity ratio is decent:
The company simply makes a lot of money and continues to grow … .mostly on the back of AWS…The Webservices is the company’s cash cow. The company uses the FCF produced by AWS and then uses the profits to lose money in areas it wants to grow.
So with AWS being the cash cow, there are risks….to quote Satya Nadella: every time they enter a new business we get a new client.
Amazon is maturing…its time for the company to decide to actually make money and to stop expanding…focus on the current business…why…take a look at Walmart…they bought Vizio this week…why…smart TVs and shopping….
Walmart is smartening up and is becoming a legitimate competitor in the online space (target…not so much)….
I’d like to see Amazon quite expanding into new markets and focus on the ones it has to maximize value…before they kill the cash cow.
My take…it’s fully valued here…not crazy over valued…not undervalued either…this is one I would sell puts on.
AMZN is joining the Dow Jones Industrial Average…its going to get boring…again sell puts.
Amazon (Ticker: AMZN) has held its earnings gap of ten bucks created on February 2nd.
The top of the gap is support at $167.73.
It is currently testing its most recent high at $175, which will be resistance.
Thursday’s action created a rising window, or gap, which will now be new support at $171.77:
It also closed over my pitchfork resistance.
Once it closes above $175, the next level of resistance is the previous high of $188.
After $188, $200 will be in sight.
A close below $167, next support will be $161.42.
I am bullish AMZN here.
-Licia
Out with Walgreens and in with AMZN
As I write this Amazon.com (Ticker: AMZN) is getting added to the Dow Jones Industrial Average.
The last time they did that was with ExxonMobil Corp (Ticker: XOM) and Salesforce.com (Ticker: CRM). Since then XOM is up 240%.
I don’t know if that will help WalgreensBoots Alliance (Ticker: WBA) WBA is pretty much a free franchise at this point.
DJIA funds are going to have to add AMZN no matter what and that gave the stock a boost this week.
AMZN looks like it wants to go back to all-time highs.
As you can see below, implied volatility is trading at year lows for longer dated options.
I can call this Fortress AMZN volatility since traders don’t think the stock can collapse. Demand for options is low and that might go for the upside too.
Low volatility rallies make me want to own call calendars, but buy some very cheap, very long term puts to keep in my back pocket in case our new euphoria turns into sadness.
Buy it when you can, not when you have to.
The Option Pit Team…
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Questions about anything? Leave a comment below!
Mark Sebastian
Founder & CEO, Option Pit
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Hey Trader,
Out of the Triumvirate of stocks NVDA has earnings next week which eliminates it as something we would want to trade…but META and MSFT…they are through earnings…both reported great earnings although META clearly took off in a stronger manager.
That said, Microsoft is currently the largest company in the world based on the strong rally it has had…let’s break this one down.