It has been a year filled with some ups and downs already and while last week was clearly a good one, it did still also mark a new trade being closed as I announced earlier this morning. That being said, I’m still very comfortable with the current positions and today should certainly be an interesting pick. It might come as a surprise to many of you..! Let’s start off by looking at the numbers for both companies, I can then explain myself:)
Ticker Name Price EPS PE Ratio PE Next Year Return YTD Sales Growth Analyst rating Book Value Beta
NFLX Netflix Inc 111.67 4.28 26.21 37.83 61.16 48.18 2.97 11.6 0.96
AMZN Amazon.com Inc 179.13 1.39 130.75 44.93 3.48 40.56 4.05 17.05 1.2
Long Amazon (AMZN)
Amazon has not been on a good streak recently. Why? It mostly has to do with what the company announced in its latest earnings report. Slow margins, diminished profits and the prospect of losing money in 2012. There wasn’t much to smile about really. Then came rumours that Amazon “Prime” had much fewer members than most had expected (Amazon does not release this number among many others so this came from a leak). Clearly, there is not much momentum at Amazon tese days. I would argue though that this is exactly the perfect time to buy a stock like Amazon. Why? Amazon has been insanely expensive for some time now. Now, the company, as it has done a few times in the past, has decided to sacrifice short term earnings in order to build a bigger, better infrastructure (Warehouse shipping), a better relationship with clients (Prime), new headquarters to support anticipated growth, a tablet that seems to be the closest thing to an iPad competitor as we can get. These are ALL GREAT MOVES. Amazon is not losing market share, not seeing out of control costs or pressure on pricing, etc. It is doing the long term thing for shareholders in my opinion.
Short Netflix (NFLX)
With all of that being said about Amazon, it is still a fairly difficult stock to trade in my type of trading because of its very high P/E ratio. One way to do it though is finding a stock that is trading at an almost identical ratio. Netflix has also seen diminished margins but on its end, it was caused by bad moves that ended up hurting the numbers of customers, revenues, etc. Those are slowly being turned around but it turned out to be a perfect opportunity for competitors to start jumping in. Clearly, while Amazon has limited downside in my opinion, Netflix has an almost opposite scenario with some upside but also a lot of downside with growing competition from Amazon, Comcast, Google, Apple and others. I have and continue to believe in Netflix, but in terms of valuations, I believe Amazon is much more attractive now.
Disclosure: No current positions on Amazon (AMZN) or Netflix (NFLX) but I would be opening one on Monday’s opening