Low Tide For Amazon?

Over The Falls
Are things really as grim at Amazon.com (AMZN ) as some on Wall Street believe? Its shares have been hammered since Feb. 2 when the giant online retailer said 2006 results could be less than analysts were forecasting. The stock, which hit a 52-week high of 50 in mid-December, fell from 45 to 37, where it still sits in the wake of the announcement. "As usual, the Street overreacted," asserts Dave Young of Paragon Wealth Management, which owns shares. Amazon's technical and fundamental characteristics remain attractive, says Young. On price-to-book value, cash flow, and earnings yield, Amazon looks solid, he adds. And after its sharp fall, Amazon stock is in a "low-risk zone," from which it usually ends up scoring an average yearly gain of more than 85%, says Young. Ivan Feinseth, research chief at Matrix Investment Research, has upped his rating from "hold" to "buy" since the drop. He describes Amazon as a "superstar" among the "classic growth" companies based on its "strong economic profitability," solid balance sheet -- with free cash flow of $4.24 a share -- and "impressive sales gains." Feinseth puts Amazon's "intrinsic value" at $45 a share. Value Line's (VALU ) Warren Thorpe urges long-term investors to hold the stock. He figures the current price is a "good entry point" because the stock "offers attractive capital-gains potential out to the end of the decade." He sees 2006 earnings of 85 cents a share on sales of $10.2 billion, vs. 79 cents on $8.5 billion in 2005.

Note: Unless otherwise noted, neither the sources cited in Inside Wall Street nor their firms hold positions in the stocks under discussion. Similarly, they have no investment banking or other financial relationships with them.

By Gene G. Marcial

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