It’s been a rollercoaster for Amazon.com (NASDAQ:AMZN) stock all year. After clawing its way to new 52-week highs in mid-July, AMZN promptly fell off on a Q2 earnings miss. Today, its year-to-date gain has been cut in half. And, believe it or not, AMZN stock’s price-to-earnings ratio is near its lowest levels since 2015, when Amazon became consistently profitable.
So if AMZN stock is a bargain by this measure, does that make it a buy ahead of the Amazon earnings report on Thursday evening?
The answer is no – and I’ve got four reasons why.
Red Flag #1 for AMZN Stock: Earnings Momentum
However you feel about a product and whether it lives up to the corporate hype, it pays to assess your stocks objectively. And you can’t go wrong looking at sales and earnings.
When you run Amazon stock through my Portfolio Grader tool, you will see that it actually rates highly on Sales Growth, where it earns a “B,” and not too badly on Earnings Growth either, where it earns a “C.”
But Earnings Momentum is another story.
It’s not enough to see a company’s earnings grow – I also want to see it growing rapidly. I’m a car guy, so let’s look at it that way. Just about any car can make it to 60 miles per hour, theoretically. But not as many can make it to 60mph smoothly…let alone as quickly as a Porsche or a Ferrari.
Sadly, when it comes to its “acceleration” – its Earnings Momentum – AMZN stock is a clunker. It earns an “F” here.
Red Flag #2 for AMZN Stock: Analyst Expectations
At Growth Investor I like to see stocks that have had their earnings estimates increased by Wall Street analysts. This usually tips us off to a stock that’s about to beat earnings expectations.
So, that’s certainly an important factor with AMZN earnings just around the corner.
Ultimately, however, AMZN stock rates a “D” for its Analyst Earnings Revisions. Or, as Zacks Research puts it, the average earnings expectation has dropped 1.66% from mid-September to mid-October.
And speaking of analyst ratings…
Red Flag #3 for AMZN Stock: History of Earnings Misses
Not only are analysts lowering their Q3 earnings estimates for Amazon…the company has a poor history of meeting expectations.
Naturally, I like to see stocks beat their earnings estimates in the past. If this Earnings Surprises trend is positive, it tells me that Wall Street either isn’t paying attention or doesn’t “get it.” And that’s attractive when looking for stocks to buy now.
Unfortunately, on the factor of Earnings Surprises, AMZN rates a “D” as well. In other words, Thursday’s earnings report is a significant risk.
And I’m not the only one who thinks so.
Red Flag #4 for AMZN Stock: Quantitative Grade
Besides fundamentals, growth investors should also look at the momentum of a stock. If it’s enjoying a nice influx of cash over time, that gives it enough room to run even higher. If big money on Wall Street is flowing OUT of the stock, well, the opposite is true.
In fact, my 30+ years of research indicate that this is the single biggest factor in the success or failure of a stock, long-term.
So, a key component of my analysis is my proprietary formula for gauging money flow; I call it the Quantitative Grade.
From time to time, we do see a stock with middling to poor fundamentals but a strong Quantitative Grade. Sad to say, though, that is not the case for AMZN stock at this juncture. It currently rates a “D” for its Quant Grade.
Why Is Amazon Stock Out of Favor?
With such a poor Quant Grade at this time, it’s fair to say that Wall Street is viewing Thursday’s Amazon earnings report as a liability. No one likes to see downward analyst revisions, much less a history of missing those targets.
But, in my opinion, there’s another factor at work here:
If you think what happened in the stock market the last few months is wild, just look at the bond market. We’ve got falling and even negative yields overseas. But as investors retreat to U.S. Treasuries it’s causing bizarre effects here, too. Just look at what happened this summer, when the two-year Treasury actually began to yield MORE than the 10-year Treasury. And even the 30-year Treasury can’t be relied upon for good yield anymore.
So if a stock’s earnings picture is uncertain, not only is it going to be volatile, but people are going to look elsewhere seeking income. Remember, AMZN stock has yet to pay a dividend, despite earnings of $5.22 per share in the most recent quarter.
Meanwhile, other stocks not only earn an “A” in my Portfolio Grader, thanks to strong buying pressure and great fundamentals …
The stocks also earn an “A” in my Dividend Grader. These stocks are able to pay great yields — and have the strong business model to back it up.
All in all, I’ve got 28 strong dividend growth stocks for you now in Growth Investor — averaging 4.2% yields — far more than the S&P 500 or even a Treasury bond. These stocks are poised to do well as we continue to see international capital flow to the U.S. markets. Click here to see how I found these stocks, and how you can get great performance out of YOUR portfolio — come what may.
Louis Navellier had an unconventional start, as a grad student who accidentally built a market-beating stock system — with returns rivaling even Warren Buffett. In his latest feat, Louis discovered the “Master Key” to profiting from the biggest tech revolution of this (or any) generation. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.