Amazing Amazon

Amazing Amazon

Let me make a quick comparison of the market price of the following stocks as at the end of the week gone by (June 22, 2018), vis-à-vis a year back, i.e., June 2017.

Common Stock	Price as on June 22, 2018	Price as on June 30, 2017	Change	Market Cap as on June 22, 2018	PE Ratio
Name/ Units	($)	($)	(%)	($/B)	Multiple
Apple	184.92	144.02	28.4%	908.9	17.04
Amazon	1715.67	968.00	77.2%	832.5	270.48
Google	1169.29	929.68	25.8%	807.2	31.01
Microsoft	100.41	68.93	45.7%	770.5	27.87
Facebook	201.74	150.98	33.6%	584.0	29.61
Netflix	411.09	149.41	175.1%	178.7	245.96
NASDAQ 100	7197.51	5646.92	27.5%

Of these stocks the one which has contributed significantly to the growth of NASDAQ 100 is Amazon, with a percentage change of approx.. 77% and a market capitalisation (no. of outstanding ordinary stocks x market price of the stock) of US$832.5 bn. Netflix not being a heavy weight in the index is not being considered.

Trillion dollar club move

What price movement would these stocks require to reach the trillion dollar market cap club?

Common Stock	Price as on June 22, 2018	Trillion Dollar Club Price movement required	Price Change required	Current PE Ratio as on June 22, 2018	New PE Ratio
Name/ Units	($)	($)	(%)	Multiple	Multiple
Apple	184.92	203.45	10.0%	17.04	18.75
Amazon	1715.67	2060.86	20.1%	270.48	324.90
Google	1169.29	1448.58	23.9%	31.01	38.42
Microsoft	100.41	130.31	29.8%	27.87	36.17
Facebook	201.74	345.44	71.2%	29.61	50.70

While it is not impossible for the respective stocks to be able to make the desired price moves to hit the trillion dollar market cap, sustenance of a 400% growth in EPS may be extremely challenging for Amazon stock.

On a current four quarterly trailing EPS of 6.34, even if Amazon declares a quadrupling projected trailing EPS of 25.36 (6.34 x 4 – two years hence, i.e., June 2020), it would translate into PE ratio of 67.65 on projected earnings, market price remaining the same.

For those who are not familiar with the significance of PE multiple, it is a quick benchmark for a potential investor, that signifies as to in how many years, at the current market price, the cost of acquiring the stock, will be recovered, assuming consistent earnings in the future. High income growth generating stocks command high PE multiples.

Despite having added the insurance vertical to its portfolio of offerings, the above seems to be a tall order by any standard. Besides, the company meets competition from its retail counterpart Walmart in the country in which it is still facing challenges to establish itself in one of the toughest and emerging market (India) from a home grown nimble footed rival (Flipkart) whose ability to challenge or survive cannot be questioned and where both the competitors have joined hands (Flipkart has been acquired by Walmart).

It took 20 years since the dotcom bubble got busted (1997-98) for the e-commerce companies to reach this stage. During these two decades the stock markets including tech stocks/ indices peaked in 2007-08 and had a terrible fall immediately, resulting in severe curtailment of capital raising abilities at an attractive prices.

Whether we can call the current period to be the peak of stock indices is a big question mark, yet a selloff in the first week of February 2018 was a jerk to the stock markets, after which except for the tech indices the rest of the market indices have remained range bound and have not scaled back their peaks so far.

Meanwhile, on weekly candlestick charts NASDAQ 100 has made a Doji which also forms a bearish harami pattern as well as a tweezer top, and Amazon’s stock has formed a shooting star and a harami pattern with a small white candle.

The price movement of tech stocks and indices during the remaining days of the June quarter and post declaration of quarterly results will be interesting to watch since the quarterly results about to be announced in the month of July 2018 will determine the direction of the stocks and the indices, with a specific interest for the quarterly results of the heavy weight Amazon.

For charts the author can be contacted at: riskadvisory@outlook.com.

DISCLAIMER:

These extracts from my trading files are for the purpose of education only. Any advice contained therein is provided for the general information of readers and does not have regard to any particular person's investment objectives, financial situation or needs and must not be construed as an advice to buy, hold and sell or otherwise deal in commodities, currencies, indices, securities or other forms of investments. Accordingly, no reader should act on the basis of any information contained therein without consulting a suitably qualified financial advisor in the first place.