On Tuesday, the Fast Money pros were trying to make sense of the moves in Amazon, with shares tumbling as much as 8% in the after market.
“The trouble with this company is valuations,” says Karen Finerman. Amazon trades at an astronomically high P/E of over 100. And although the Street has accepted that multiple for quite some time, Finerman thinks that’s about to change.
Investors ran for the exits after Amazon earnings raised serious concerns about growth.
The company reported a 58% decline in quarterly profit and continued to spend heavily at the expense of margins.
With results like that, “I don’t see how they can grow into the valuation anytime soon,” Finerman says.
But rather than sell-off sharply, Finerman thinks Amazon will become the new Wal-Mart, that is dead money. She fully expects to see the stock trade in a range as the market forces shareholders to wait for the company to actually experience some of the growth that’s already priced into the stock before it makes further gains.
”10 year ago Wal-Mart was a juggernaut (like Amazon) and it traded within $1 of where the stock is right now. At that time they earned $1.45. Now they earn $4.25. In other words, they had to grow into their valuation. And that’s where I think Amazon is now. They can do everything right – triple earnings – but the stock can still go nowhere because valuations are so stretched!”
Trader Joe Terranova shares the sentiment. “Amazon is not a name I’d want to own. Sales growth is slowing in Europe and the spending trend looks like it’s increasing.”
If you’re a trader, Guy Adami suggests shooting against some key levels – but as a trade. “$170.25 – that was the Dec 14th low and the stock bounced . And the 52-week low in March was $160.50," he says.
In other words, Adami thinks you can play Amazon as an oversold stock in the short-term using these levels as stops.
Looking at the numbers more closely, Amazon said net income for the period ended in December fell to $177 million, or 38 cents a share, from $416 million, or 91 cents a share in the same period a year earlier. Revenue rose 35% to $17.43 billion.
Wall Street analysts had expected Amazon to report earnings of 17 cents a share for the quarter, which includes the important holiday-shopping season, and $18.25 billion in revenue.
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Trader disclosure: On Jan. 31, 2012, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s "Fast Money" were owned by the "Fast Money" traders: Adami owns C; Adami owns GS; Adami owns MSFT; Adami owns AGU; Adami owns NUE; Adami owns INTC; Adami owns BTU; Finerman owns AAPL; Finerman owns BAC; Finerman owns JPM; Finerman owns MSFT; Finerman owns IBM; Finerman owns GOOG; Finerman owns ORCL; Finerman owns GPN; Finerman owns CF; Terranova is long VRTS; Terranova is long LQD; Terranova is long MUB; Terranova is long EMC; Terranova is long AXP; Terranova is long JOY; Terranova is long MCD; Terranova is long OXY; Terranova is long IBM; Terranova is long SU; Terranova is long TRLG; Terranova is long CNX; Terranova is long SBUX; Terranova is long SNDK; Terranova is long GOOG; Terranova is long MA; Terranova is long UNG April $5 puts; Terranova is long AAPL Feb 430 puts; Terranova is short AAPL put spread; Terranova is short AAPL Feb 440 puts;
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(AMZN): I, Kerry Rice, hereby certify that the views expressed in this research report accurately reflect my personal views about the subject company (ies) and its (their) securities. I also certify that I have not been, am not, and will not be receiving direct or indirect compensation in exchange for expressing the specific recommendation(s) in this report.
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