Investors may be feeling a little seasick as Amazon (Amazon Stock Quote, Chart: NASDAQ:AMZN) and the rest of the FAANG stocks continue to get hit by wave after wave of selloffs.
Hang in there, says Bruce Murray, CEO and CIO of the Murray Wealth Group, who still sees a long runway ahead for the e-commerce giant.
The great tech selloff continued this week, with Amazon now off eight per cent for the week and falling lower again in early trading on Thursday. The stock now sits 24 per cent off its all-time high of $2050.50 set on September 4, the most dramatic downturn coming at the end of October when Amazon released its third quarter financials. Shares dropped ten per cent overnight as investors reacted to the report which although beating estimates on earnings with an EPS of $5.75 versus the expected $3.14, nevertheless came in lower than expected on revenue at $56.6 billion versus the consensus $57.10 billion. Management’s fourth-quarter guidance also disappointed, calling for revenue in the range of $66.5 billion and $72.5 billion, which was lower than the consensus forecast of $73.79 billion. (All figures in US dollars.)
But while there is likely to be more turbulence ahead for the stock, there’s no doubting the company’s vast potential, says Murray, who spoke to BNN Bloomberg on the topic.
“They’re a great growth company — I don’t believe they’re finished,” Murray says. “You’re buying the stock on earnings that are way out there, earning $25 a share this year and you’re paying 45x – 50x earnings for it. They’re growing so nicely that I believe you should have some and you’ll grow with it.”
“But it’s going to be very volatile from here, both upwards and downwards,” he says.
Along with its penetration into every corner of retail, Amazon is being praised for its cloud computing prowess, where it took in $6.68 billion in revenue last quarter (compared to the consensus estimate of $6.71 billion), and the growth of its online advertising segment, which while not clearly delineated in the company’s earnings report (it falls under the “other” revenue category) has seen substantial quarter-over-quarter growth, which compares favourably to the declining growth rate for online ad kings, Google and Facebook.
Murray says that for AMZN volatility is likely the name of the game for a while yet.
“I think we’re in the height of the selling right now. But stocks like this can pull back 50 per cent,” Murray says. “Stocks like Amazon with big P/Es, when people panic, everybody’s got profits in them and so there’s a lot of room to take profits.”
“I can’t say it’s the bottom. I can’t say it’s not going to be lower next year, but I think three to five years from now you’re going to be very happy owning it,” he says.
Disclosure: Nick Waddell and Jayson MacLean of Cantech Letter own Amazon shares.
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