![]() Over shorter time horizons like 2 years, these changes in market valuation are much more significant drivers of your brokerage account's market value than any actual performance of AMZN's business. At the end of May 2021, AMZN stock was trading at around 4x Amazon's top-line revenues or 16x book value, while today those ratios are a little over 2x and 8x respectively. ![]() This underperformance of AMZN over the past two years, despite Amazon's continued growth as we will see later, was simply due to the market significantly reducing how much it was willing to pay for each dollar of Amazon's sales, earnings, or book value over the past two years. This chart gets a little bit messier when we look back over the time horizon of this article, two years, over which time we see that AMZN fell more than QQQ, which fell more than SPY, over calendar year 2022, but unlike QQQ, AMZN shares have not recovered to their mid-2021 levels. This chart also shows how in periods like early 2023, when growth-tilted QQQ rose more than the more balanced SPY, AMZN rose even more than QQQ, showing how AMZN is an even more extreme manifestation of US large cap growth than QQQ. This first chart below comparing the movement of AMZN's share price in the first five months of 2023 versus the moves in QQQ and SPY over the same period shows one of the best examples of this relationship. This makes sense, given that these are some of the most traded index ETFs in the world, and many of the buy and sell orders for AMZN shares are ultimately driven by flows into and out of index ETFs like these. This is because even though AMZN only makes up about 6.7% of QQQ and 3% of SPY, most of AMZN's short-term moves are highly correlated to these two benchmarks. Using AMZN As A Partial Market Benchmarkįor readers who may find it questionable that I might trade AMZN almost interchangeably with part of my QQQ or SPY exposure, I refer to my 2021 article where I show how closely SPY can be tracked with just 5 stocks. In this article, I will break down the factors likely to drive AMZN's business and share price over the short term, the next two years, and suggest some specific option trades I am considering to capture these next possible moves in AMZN. I find it much easier to run a refreshed valuation on a few simple representative companies like AMZN than on all 100 or 500 stocks in QQQ or SPY respectively, and have at times even used options on stocks like AMZN as broad market hedge similar to how I would use options on SPY or QQQ. That said, AMZN is a well-diversified business highly correlated to benchmarks like the NASDAQ 100 ( QQQ ) and S&P 500 ( SPY ), so AMZN has been on my short list of stocks whose valuation metrics I watch as a high level barometer of how cheap or expensive the broader stock market may be. My main focus is on non-US dividend paying stocks, so Amazon Inc ( NASDAQ: AMZN), America's highest-grossing non-dividend paying stock, in many ways represents the opposite of most stocks I ever consider investing in. Teamjackson/iStock Editorial via Getty Images
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