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Will Amazon Stock Be Able to Maintain Its Momentum?

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Apr. 29 2015, Updated 5:06 p.m. ET

Amazon stock rises by 32% in the last three months

Since Amazon’s (AMZN) announcement of its 4Q14 earnings, its stock has been on an upswing, increasing by 32% in the last three months. One of the biggest factors of this upswing was the better-than-expected earnings per share (or EPS) that Amazon announced in 4Q14. Analysts had expected this number to come in around $0.17 per share, but Amazon exceeded expectations by producing EPS of $0.45 per share.

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Plus, Amazon was able to beat its own guidance on operating earnings in 4Q14. Amazon had expected its GAAP (generally accepted accounting principles) operating income to be anywhere between a $570 million loss and a $430 million gain. The company produced an operating income of $591 million. This was a surprise, considering that Amazon had recorded an operating loss of $544 million in 3Q14.

Steep increase in Amazon’s stock becomes a risk

This 32% increase in Amazon’s stock price is noteworthy—especially when you consider that the company’s peers eBay (EBAY) and Google (GOOG) (GOOGL) have seen their stock increase by 6% and 4%, respectively. In contrast, Alibaba’s (BABA) stock has declined by 20% in the past three months, as the chart above shows. Even the SPDR S&P 500 ETF Trust (SPY), which tracks the S&P 500 Index, showed only a moderate increase of 3% in the last three months.

However, this steep increase in Amazon’s stock becomes a risk for investors. The most worrying aspect is that Amazon’s investors have only considered the better-than-expected 4Q14 results, but have brushed aside the weak outlook that the company announced for 1Q15.

In the first part of this series, we discussed how Amazon’s revenue growth could slow down considerably in 1Q15. In the second part, we discussed how Amazon could see another operating loss in 1Q15. There is a possibility that Amazon’s stock could undergo a noticeable decline on April 23 when the company announces its 1Q15 earnings.

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