It is not a big surprise to all of you who are regular readers to see us go out with this trade. After being skeptical of Amazon initially, we have gradually become more optimistic about the company and seeing our earlier trade on Amazon and Knot fail was disappointing. On the other hand, things have been going great so far as we have maintained an average of over 9% per trade so far this year and going ahead with this one made a lot of sense. We see a lot more upside risk in Amazon and very little risk that Yahoo’s stock could gain very much unless someone made an offer but that is becoming less and less likely.
Before going further, here are the main numbers that we looked at:
Ticker Name Price EPS PE Ratio PE Next Year Return YTD Sales Growth Analyst rating Book Value Trend Analysis
AMZN Amazon.com Inc 175.93 2.58 68.66 30.65 (3.49) 39.56 4.21 15.22 -55
YHOO Yahoo! Inc 16.785 0.9 21.96 18.18 0.38 (2.10) 3.63 9.2 75
Surprisingly, the trend analysis score favors Yahoo (YHOO) but I would say that is mostly because of the disappointing guidance that Amazon gave in its latest earnings report which had caused a drop in the stock price. No big worry here.
Amazon has been on a remarkable streak in recent years as it remains the overall leader of this new ecommerce world and no one seems even close to catching up. Smaller players such as Groupon made remarkable strides but even there, an investment in LivingSocial seems to be a great way to counter the coupon trend. Overall, I think Amazon is placed incredibly well for both ecommerce and mobile plays which makes it current growth likely to remain for some time and its stock a solid buy at its current valuation.
Yahoo…. I could go on for a long time but a few of the reasons why I do not like this stock were listed in last week’s post that was addressed to current and potential Yahoo shareholders. The company is poorly managed, lacks direction, passion and a clear plan. For that reason, I do not see Yahoo’s sales taking off anytime soon and the non-existent growth is likely to remain for some time. Because of its valuable assets, the stock might not go much lower but it will probably not go much higher too which makes it a nice short.
Just take a look at the charts for both companies:
Disclosure: I do not hold positions on either stocks