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 highly regarded equity and options analyst who has spent much of his nearly 30-year market career designing and interpreting complex models to help investment firms transform millions of data points into impressive gains for clients.
At heart Chris is a quant - like the "rocket scientists" of investing - with a specialty in applying advanced mathematics like stochastic calculus, linear algebra, differential equations, and statistics to Wall Street's data-rich environment.
He began building his proprietary models in 1998, analyzing about 2,000 records per day. Today, that database, which Chris designed and coded from scratch, analyzes a staggering 700,000 records per day. It's the secret behind his track record.
Chris holds degrees in finance, statistics, and accounting. He worked as a licensed broker for 11 years before taking on the role of Director of Quantitative Analysis at a big-name equity and options research firm for eight years. He recently served as Director of Research of a Cleveland-based investment firm responsible for hundreds of millions in AUM. He is also the Founder/CIO of ETF Advisory Research Partners since 2007, noted for its groundbreaking work in Behavioral Valuation systems. Their research is widely read by leaders in the RIA business.
Chris is ranked in the top 99.3% of financial bloggers and top 98.6% of overall experts by TipRanks, the track record registry of financial analysts dating back to January 2009.
He is a frequent commentator on financial markets for CNBC, Fox, Bloomberg TV, and CBS Radio and has been featured in Barron's, USA Today, Newsweek, and The Wall Street Journal, and numerous books.
Today, Chris is the editor of Night Trader and Strikepoint Trader and contributes to Money Morning as the Quant Analysis Specialist.