New trade: AMZN vs PCLN

By: ispeculatornew
Date posted: 02.02.2009 (4:00 am) | Write a Comment  (2 Comments)

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It had been almost confirmed from my post on Friday, yes I am ready to trade on Amazon. While I do like their recent growth and they did have some impressive numbers during the past holiday season, they are now trading at a 40 P/E, which personally I do not see a reason for.

AMZN is now trading at level which compared to its P/E would signal a company going through a very high growth period which I simply do not think is the case. I’m glad I waited a few days to go short on Amazon because its opening price in a few hours will be a lot higher thus helping my trade tremendously. What I was not certain about was which symbol to go long against AMZN. I finally decided to go with, the discount online trip booking service that worked so well a few weeks ago when I traded it against NILE (generating a 30% return). Because of PCLN’s relative outperformance in that trade, I was hesitant to go ahead with another one so quickly, but PCLN is so well positioned to perform well in an economic downturn and it is trading at a P/E that is almost half of AMZN making it very attractive on a comparables basis. They have very different business models with their each type of risk so I’m not sure I’d do this trade on a long term basis (2-3 years), simply because it will be a lot easier for competitors to create problems for PCLN than it is for AMZN.

But looking for a 20% return on this trade seems like something that could get done before PCLN sees any type of decline in its market share, as it continues to gain exposure. In fact, Priceline did a SuperBowl commercial that will help in that retrospect. By the way, I will be posting later this week about these ads, their influence and who came out on top in my opinion.

In the meantime, I will post comments with the opening prices of AMZN and PCLN in a few hours that will be used to get the returns. Again, since this is a long/short trade, we are using a 70% ratio to get the return, that is, estimating that 70% of the value of the short position will be necessary to set up as margin, and thus is the “invested capital”.

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  1. Comment by admin — February 4, 2009 @ 10:16 am

    just to confirm the open price (trade prices used) are:

    PCLN: 66.28
    AMZN: 58.51

  2. […] note to let you know that I will be closing off the Feb 2nd trade of LONG PCLN vs SHORT AMZN tomorrow. Amazon did not go down as expected but great results by Priceline were enough to insure a […]

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