Amazon stock falls on growth concerns
It’s rare to see just about everyone on Wall Street agree on something, but that’s the case when it comes to Amazon.com Inc.
Every single analyst who rates the stock — all 55 of them — recommends clients buy it, according to Bloomberg data. Active fund managers “are even more overweight” the name now than they were a year ago, per a Bank of America report on Aug. 10.
Yet that ubiquitous bullishness is being put to the test as last month’s unexpectedly weak sales forecast complicates the company’s growth narrative. In a summer when Amazon co-founder Jeff Bezos blasted off into space, the company’s stock has fallen back to Earth. The shares have tumbled nearly 14 per cent from a peak in early July, erasing about US$253 billion in value, as investors question its prospects on the other side of a pandemic that turbocharged demand for its services.
Shares rose 0.5 per cent on Thursday. Earlier this week, the stock closed below its 200-day moving average for the first time since June, and it is now lower than where it started the year.
“The market rewards growth and it doesn’t look like Amazon has any catalysts for increased spending of its users or picking up more users,” Kim Forrest, founder and chief investment officer of Bokeh Capital Advisors, said in an interview on Bloomberg Television.
The company’s reported plan to open several large department-store-like locations in the U.S. doesn’t appear to be the news that will turn the stock around.
Amazon’s poor performance stands out among U.S. companies valued at more than US$1 trillion, as well as the market as a whole. Apple Inc., Microsoft Corp., and Alphabet Inc. all hit records this week, as did the S&P 500 Index. Facebook Inc. is about 5 per cent below its own record close.
The e-commerce company’s disappointing outlook last month came along with revenue that missed estimates for the first quarter since 2018. Analysts have pared back their expectations in the wake of the report. For Amazon’s current quarter, the average earnings estimate has dropped about 16.5 per cent over the past month, according to data compiled by Bloomberg. The revenue consensus has fallen by nearly US$6.5 billion, or 5.5 per cent, over the same period.
Yet the shares do not yet look technically oversold, said Chris Verrone, partner and head of technical and macro research at Strategas Research Partners, who thinks more caution is warranted. And the unanimous bullishness toward the stock is itself also a red flag for him.
“This is the time to be a contrarian,” he said. “When every analyst is optimistic it is tough to live up to those expectations.”