Amazon.com Inc. (Nasdaq: AMZN) is preparing to announce its quarterly earnings this afternoon after the close, and plenty of traders are expecting big things.
I think the real "smart money" should be avoiding the announcement, and I'll show you why.
Don't get me wrong – there's no question this competition- and market-crushing company is still one of the absolute best stocks for buy-and-hold investors to own for long-term growth, and in a minute, I'm going to show you how to juice those long-term profits.
But the folks who want to make some big, fast gains on these shares should hang back until the real high-profit fireworks start.
It won't be long…
Strong Earnings Expected, but… There's a Catch
Amazon.com is expected to announce earnings of $1.39 per share on revenue of $37.18 billion. The results would represent a 22% growth rate in the company's top line, which would be the third quarter in a row of 22% growth.
Not bad by any stretch.
The thing is, this growth has generally failed to rally the stock immediately after earnings in the past. That means that you should be sitting on the sidelines waiting for an opportunity to buy this stock on the next dip.
Looking at the last three years, Amazon.com has beat analyst EPS estimates 50% of the time. Contrary to what most casual investors would think, this is actually below par for the "average" S&P 500 stock.
Interestingly, average performance after an EPS beat averages 10%, while the average one-week performance after an earnings miss is 8.3%.
Think about that for a second. You always want your potential upside to far outweigh the downside risk. In Amazon's case, there's less than a 2% difference – only 1.7%.
Not worth the risk!
About the Author
Chris Johnson is a quant - he's obsessed with building and perfecting mathematical models that allow him to predict, with startling accuracy, the direction of the markets, entire sectors, and individual securities. For the last year, he's been researching and building a new system that lets him move swiftly in and out of the hottest stocks in the market for life-changing gains - entirely on his own terms. The results of his newly-minted Night Trader system are nothing short of amazing.
Chris also contributes to Money Morning as the Quant Analysis Specialist.