Amazon on Fire From Kindle Sales, But Can it Last?

The Kindle has enflamed (pun intended) interest in Amazon’s stock – but will that interest translate into price appreciation?  It’s tough to say – I know I love the Kindle I got my hands on just the other day – but the analysts in this piece seem to have some good thoughts.  Take a read:


 
Published: Monday, 28 Nov 2011 | 6:30 PM ET
By: Bruno J. Navarro
Producer
 

The Kindle Fire sold like hotcakes on Black Friday, but other factors may hold down Amazon.com[AMZN  189.2635    -4.8865  (-2.52%)   ]stock, “Fast Money” experts said Monday.

“At the $199 price point, I think it’s very easy to see this device continuing to sell really well through the rest of the holiday period,” analyst Ken Sena of Eyercore Partners said. “The iPad had such a hold on the tablet market that to see the Kindle Fire actually rival and in some examples surpass the iPad is a bit of a surprise.”

The issue now, he said, was what impact the Kindle Fire will have on the company’s first-quarter guidance.

Last quarter, Amazon.com reported an operating margin below 1 percent.

“Once you do start to see some of that inflection occur, you’ll be layering on very strong revenue growth — 40 percent plus — in addition to margin expansion. I think at that point, the story looks very good,” Sena said. “We just don’t know when that inflection exactly will be.”

Sena said over the past two years, Amazon.com was trading at a 50 percent premium to its 200-day average.

“At this point this year, it’s below,” he said. “While there is excitement over the revenue of what the Kindle Fire could bring, I think there is some concerns over margin weighing down.”

In its favor, Amazon.com delivers customer purchases preloaded on the Kindle, which also provides a platform for future online purchases, Sena said.

“That bodes well for Amazon,” he said.

Looking at options activity for the day, trader Scott Nations said Amazon.com stock price found a floor.

“I think the interesting option play here, though, is in Barnes & Noble [BKS  16.88    -0.30  (-1.75%)   ],” he said.

BKS sells the Nook, yet another rival to the Kindle Fire.

Nations noted that four calls were traded for every put, with call volume at three times the daily average.

“I was really surprised. I didn’t think there was room for a third tablet option,” he said. “The stock is on fire and people want upside.”

Karen Finerman said the issue wasn’t whether the Nook was good.

“The question is: Can they make the transformation? That’s a much, much more difficult thing to do,” she said.

In a related note, host Melissa Lee noted Barclay’s “overweight” rating of Corning[GLW  13.065    -1.715  (-11.6%)   ].

“This is a name I think you can own here,” hedge fund expert Tim Seymour said. “Especially if all the things we’re saying about Apple and these guys are true.”

Joe Terranova called the sustainability of Corning’s strength into question.

“When you look at today’s price action in Best Buy[BBY  27.77    1.28  (+4.83%)   ]it tells you that there potentially is not this overall sustained theme,” he said.

Tuesday, November 29th, 2011 Stock Trading

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