Tomahawk, WI 9/03/2013 (BasicsMedia) –  The stock of Inc. (NASDAQ:AMZN) was recently considered to be the perfect stock with a strong buy rating from analysts and investors in the market. The company presented competitive cost advantages, strong and accelerated growth in revenues, faster growth in the new businesses, increase in earnings estimates and expectations that the company would beat down the estimates – all to prove the strength of the stock to boost the investor confidence. However, it would prove essential to understand the real picture behind this so called perfect stock.

Actual decline in revenues

Investors were highly attracted by the 22% growth in revenues reported by Amazon for the recent quarter. It was commented that such strong increase in revenues over the previous quarter proves the efficiency of operations of the retailer and thereby presents higher level of optimism to the traders. However, a look at the historical performance of the financial results for the past five quarters would clearly reveal that the company had actually posted the lowest 22% growth in revenues in its recent earnings reports. It thus proves to be a big delusion to say that Amazon is a strong buy owing to its significant growth in revenues for the recent quarter.

Focus on new businesses

Yet another major reason quoted to say that is a strong buy is the assumption by analysts and investors that the company is making greater shifts into newer businesses which are presenting heavy demands in the markets. Though the company had recently made its move into businesses such as web hosting, digital media and similar other ventures, it is worth noting that around 66.32% of the company’s overall revenue had only been from the electronics and general merchandise sales, even for the recent quarter. These sectors had proved to contribute an average of 63% to 66% of the company’s revenues ascertaining that is still a general retailer.

Concern on lower operating margins

While Amazon had proved to present strong gross profit margins, it is a bit concerning that the operating profit margins of the company for the recent quarter had been as low as 2.6%. On the other hand, investors will also have to consider that eBay proved successful to present strong operating margin of 19.34% during the same period. Further, the technology and fulfilment expenses of Amazon had also increased heavily from 8.34% to 10.10% for the recent quarter and with the constant fight for content with Netflix, it cannot be expected that the company would be able to control these expenses in the near future.

All such delusions completely wipe off the big expectation that would beat down the estimates for the forthcoming quarters. In addition, the company had missed out the estimates for nearly three times in the past four quarters and had missed out by an average of 172.5% during these quarters. All such numbers and facts which prove to be totally against the bright prospects of present a totally opposite direction of stock price movement against the present buy rating given to the shares.

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