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Why Investors Shouldn't Chase Amazon Higher


Eventually air will stop pumping into this balloon.

I've got three -- yes, three -- Halloween parties to go to this weekend. My kids convinced me to go as Frankenstein, however my wife would argue that's not too much of a stretch.

Asian stocks rebounded overnight. The Hang Seng and the Nikkei were up 1.71% and 0.15% respectively. European stocks were in positive territory early this morning, too. And here in the US, we're currently trading lower.

Here's what I'm focused on this fine Friday morning (besides the rapidly approaching weekend):

The company continued to prove to investors why it's a good read.

Did you get a glance at its third-quarter results? It put up $0.45 in the period, which thumped the daylights out of the $0.33 the Street had been looking for. It managed to beat on the top line, too.

Justin Sharon points out in Upgrades & Downgrades: Amazon Feels the Love that the company was showered with some recent upgrades.

Just one comment here: Between the positive earnings and all the accolades the analyst community is bestowing upon it, there's a lot of air going into this balloon. But when that eventually stops -- and I think it will -- what's going to happen? Even the heartiest of flowers never grows to the sky, and I'm content to sit this one out.

More thoughts on the company:

1. It was indeed a very good quarter and I'm expecting the shares to respond in kind after the opening bell.

2. Management indicated it's looking for "between $8.125 billion and $9.125 billion" in fourth-quarter sales. That's pretty good as the estimate I'm seeing is for $8.11 billion. I sense that the analyst community will be cranking up their estimates.

3. There could be a new 52-week high here today, and if that happens, even more could jump on the bandwagon.

Personally, I see it as a trade. I'm old-school and won't chase this stock ever higher. I also have a problem with paying 42.7 times the 2010 estimate (which is $2.17). Even if it put up $4 in 2010 I'd probably still think twice.

For my last take on Amazon, click here.

The chipmaker was out with its third-quarter numbers last night after the bell. To its credit, excluding items it tossed $0.15 on the scoreboard for the quarter, which was a shiny penny north of expectations. It beat by a smidge on the top line, too.

My take:

A beat is beat -- my hat is off to it for that. But I'm not expecting Street estimates to really get a big bump up. And at the end of the day -- because I'm cheap as the day is long -- I'm not going to pay 19.4 times this year's estimate. I think the shares are fairly valued here.
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No positions in stocks mentioned.

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