Market Overview

Amazon Hit After JPMorgan Says Profit Declining

Amazon Hit After JPMorgan Says Profit Declining

Shares of Amazon (NASDAQ: AMZN) traded down over three percent on Thursday after analysts at JPMorgan downgraded the stock from Overweight to Neutral. JPMorgan lowered its price target on Amazon to $300 from $333.

(Even though JPMorgan is now Neutral rated, Amazon still trades far below its price target -- about $266 on Thursday.)

In its note, JPMorgan argues that its “bottom-up analysis of Amazon's key business lines suggests more material deceleration in gross profit in 2013.” The firm thinks that Amazon will become a “more valuable company over time,” but believes the “risk/reward at current levels is more balanced.”

Although Amazon has never attracted the level of scrutiny of say Green Mountain Coffee (NASDAQ: GMCR), the company has long had its detractors. Mostly, traders have talked down the company based on its relatively outrageous valuation.

Amazon currently lacks a trailing price-to-earnings ratio, as it reported a loss last October, but when the company did have one, it traded at valuation significantly greater than the broader market.

Calls of Amazon's relative overvaluation go back for well over a decade, as the stock was voted as Wall Street's “most overvalued” back in 1999. Still, Amazon has been a tremendous performer: over the last year alone, shares are up nearly 50%, and over the last five years, shares have tripled.

But perhaps cracks are starting to form in Amazon's model. The company slashed the price of its 8.9-inch Kindle Fire HD yesterday, cutting the price of the base model by $30 and the 4G model by $100.

In addition, Google (NASDAQ: GOOG) has begun to roll out its shopping service in California's bay area, partnering with retailers like Target (NYSE: TGT) to offer same-day delivery. It may never replace Amazon fully, but should Google be successful, it could put real pressure on Amazon's core business.

At any rate, with Thursday's drop, Amazon's performance over the last week has been poor. Over the last 30 days, Amazon shares are down over one percent, whereas the broader S&P 500 is up about 12%.

Latest Ratings for AMZN

Jan 2021Credit SuisseMaintainsOutperform
Jan 2021Morgan StanleyMaintainsOverweight
Nov 2020China RenaissanceUpgradesHoldBuy

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