Shares of Amazon.com (NASDAQ:AMZN) are in the negative this year as the online retailer has fallen sharply in recent weeks. Now, the stock is into oversold territory, trading at a Relative Strength Index of 26. This is the first time in the past 12 months that the stock has gone oversold. It’s a rarity for Amazon, which could suggest that this may be an attractive time to buy.
But the more concerning trend is the overall bearishness in growth stocks. Cathie Wood’s ARK Innovation ETF (NYSE Arca:ARKK) is down 7% this year while shares of Amazon have fallen 2%. They are both coming off fantastic years in 2020 with the growth-oriented ETF rising 149% and Amazon jumping 76%. This year, investors have been cashing out their profits and showing some resistance in buying up growth stocks.
Another reason investors are bearish on Amazon of late: the company missed analyst expectations when it released its second-quarter results in July. Although its per-share profit of $15.12 was better than the $12.30 that Wall Street was looking for, it’s the top line that caused concern as sales of $113 billion missed expectations of more than $115 billion. The company still generated good year-over-year revenue growth of 27% but as consumers opt for in-person shopping as the economy opens back up, investors may be concerned that the company’s growth rate could decline in future quarters.
For a stock that trades at close to 60 times its future profits, any blemish on Amazon’s earnings report could make the stock vulnerable to a selloff. And that makes the stock a bit of a risky buy. Even with soft performance this year, Amazon is still heavily overpriced and could fall even further down in the months ahead – it’s not a stock I would buy just yet.