Yoshikami: Amazon Trades On 'Hope,' Not Fundamentals

Amazon, Inc. AMZN shares fell significantly in Thursday’s after hours session after the company missed earnings and revenue estimates. The company came near consensus in cloud AWS growth, but that didn’t matter to investors, who appear to have focused on a 50-cent EPS miss.

The sell-off comes after a period of solid appreciation for Amazon shares — the key member of the famed F.A.N.G. trade was one of the best performing S&P stocks of 2015. However, with the selloff it may be time to reconsider.

Related Link: Is Amazon Really Worth $800?

“[I]t’s time to ask if Amazon is just a large unicorn waiting to be revalued,” Destination Wealth Management CEO Michael Yoshikami wrote in a new opinion piece on CNBC. Yoshikami’s thesis unveiled three key questions investors should watch going forward:

1. "At what point should you start valuing a company based on its fundamentals in terms of earnings power rather than stratospheric growth?”
2. "At what point do you start looking at a company not as a startup but instead a revenue generator?”
3. "How long will investors be patient while Amazon engages in huge infrastructure spending and expanding into new markets at the sacrifice of profit?”

For traders who color their valuation metrics based on industry under/overvaluation, Amazon’s current slate is very red: 920 P/E, 114 Forward P/E, 15.3 PEG, 23 P/B, 55 P/FCF, the list goes on.

Yoshikami said the company’s strategy may have to eventually change. "At what point will Jeff Bezos say enough is enough in terms of sacrificing profit,” he continued.

"Until that question is answered this company will continue to trade on sentiment and hope, not current fundamentals,” he added, explaining that the current sell-off may be demonstrative of the market reevaluating shares based on those fundamentals.

For its part, Destination Wealth Management is “staying away” from Amazon, which he implied was too much of a momentum-based stock.

"When the valuation is more reasonable and we have better clarity as to its plan to start turning a profit rather the growing market share, we might jump in,” the firm’s CEO concluded.

Amazon shares are near the $586 level, down 7 percent on Friday mid-day.