Amazon.com, Inc. (AMZN) & Other Earnings Bears, Should You Buy In?

Online Retailer Seeks Stock Fall Lower

The company whose earnings can usually do no wrong, Amazon.com, Inc. (NASDAQ:AMZN), saw a 7.24% loss on Friday. In the past, poor margins have been forgiven for strong revenue, but for the first time, the company posted weaker revenue and stronger margins, and the market was not forgiving. The company saw total revenue rise 22%, 26% in the U.S., and a 260 point basis point increase in gross margin, which was not enough to satisfy the market.

There’s little denying that when you look at Amazon.com, Inc. (NASDAQ:AMZN)’s quarter and its growth, that this is a great company. The problem is that Amazon.com, Inc. (NASDAQ:AMZN) has a great company’s valuation, and when combining international weakness with fear surrounding the future of sales tax relative to its business model, investors finally took profits. Now, I for one don’t think its price/sales ratio of 1.95 is too expensive (especially compared to eBay’s price/sales over 4.50). However, growth is decelerating as the company grows, and I don’t consider it a “value” stock. Hence I would not buy on this weakness, and would be wary of a larger sentiment shift following its quarterly report.

Conclusion

In my book, Taking Charge With Value Investing (McGraw-Hill, 2013) I discuss the process of buying after earnings, and from all possible angles. One angle being after a stock trades lower, as this can often present value when a stock trades illogically. While there are many steps in successfully identifying when a stock trades illogically, the best step is also common sense: Simply read the report and listen to the conference call first before looking at the stock. Then, you can determine if the quarter was good or bad, and you’ll be one step closer to finding great post-earning value.

The article A Look at Three Post-Earning Decliners: Are Any Presenting Value? originally appeared on Fool.com and is written by Brian Nichols.

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