Nasdaq AMZN Amazon

After a long drought of notable initial public offerings (IPOs), investors are set to get a long-anticipated listing next week.

Amazon.com on Tuesday said it is investing over $440 million over the next year to boost wages for its contracted delivery employees.

Back when the COVID-19 crisis temporarily capsized the global economy, the definition of office attire shifted dramatically, benefiting athletic leisurewear specialist Lululemon ( NASDAQ:LULU ). However, both economic and social circumstances have pivoted away from favoring the apparel retailer. Adding to the woes, institutional investors may be signaling the risk of future downside. Therefore, I am bearish on LULU stock. The Unpleasant Backdrop for LULU Stock Back in December 2020, an op-ed from The Washington Post noted that the U.S. workforce was having its “pajama moment.” Naturally, this framework benefited Lululemon. Formal office attire was out. Casual wear was in. However, shifting circumstances no longer decisively favor LULU stock, posing anxieties for shareholders. For one thing, major corporations appear to have had enough with the aforementioned pajama moment. Now, they want – no, demand – their workers to return to the suit-and-tie moment. For example, TipRanks contributor Steve Anderson pointed out that Amazon ( NASDAQ:AMZN ) issued an ultimatum regarding its return-to-office mandate. Other companies could follow suit. Moreover, and just as pertinent for LULU stock, Federal Reserve Chair Jerome Powell warned that inflation remains too high. Therefore, it’s not out of the question for the central bank to issue more rate hikes. Of course, higher borrowing costs stymie business growth. Subsequently, such a hawkish framework could force mass layoffs, and the threat of such could cause workers to obey return-to-office directives. Fundamentally, that would be a negative double whammy for LULU stock -- lose to competitors selling professional attire and also lose to monetary policy. To be sure, most analysts remain generally optimistic about LULU stock. Still, the most recent assessment comes from Bernstein’s Aneesha Sherman, who pegged Lululemon as a Hold. Also, the expert’s price target landed at $366, implying 5.7% downside potential. Unfortunately, that might not be the only source of rough news for LULU stock. Indeed, options traders don’t seem very confident. Smart Money Seemingly Anticipates Downside for Lululemon While analyzing the options market (where the smart money often plies its trade) isn’t a foolproof trading strategy, it’s a valuable practice, nonetheless. Basically, professional traders – or better yet, institutional investors – have resources and information that regular retail investors do not. However, deciphering the options arena helps to even the playing field. For LULU stock, one of the biggest concerns is that following the expiration of the $420 calls on October 20, 2023, the options flow screener I use (which looks for big block trades likely made by institutions) presently shows no major bullish activity in 2024 and early 2025. Instead, the only significant transactions feature negative sentiment. Specifically, traders bought $300 puts with an expiration date of June 21, 2024, and bought $280 puts with an expiration of January 17, 2025. More importantly, the volatility smile – or the implied volatility (IV) of options plotted at various strike prices – for LULU stock presents a concerning profile. Basically, IV is relatively muted at the strike prices closest to the open market price and beyond. In sharp contrast, IV spikes higher in the strike prices much below the open market price. Technically, this setup suggests that options traders are hedging their bets against tail risk (basically, a black swan event). If so, that doesn’t bode well for LULU stock. Financials Present a Contrasting View Despite some worrying signals for LULU stock, it would be unfair to characterize the underlying apparel retailer as wholly troubled. Indeed, as TipRanks contributor Nikolaos Sismanis pointed out, Lululemon posted a top-and-bottom-line beat for its second-quarter earnings report, part of the reason why Sismanis is bullish on LULU. Looking at the financial performance, it’s not an unreasonable assessment. For example, Lululemon saw significant growth in its international business, thanks in large part to China. Also, Sismanis mentioned that Lululemon benefits from superior economies of scale because of its business expansion initiatives. While not disputing this framework, a fundamental challenge is that social trends for attire may shift (i.e. back to work). Also, the rumblings in the derivatives market imply that professional traders don’t share the same optimism for LULU stock. Is LULU Stock a Buy, According to Analysts? Turning to Wall Street, LULU stock has a Moderate Buy consensus rating based on 15 Buys, three Holds, and one Sell rating. The average LULU stock price target is $439.68, implying 15.4% upside potential. The Takeaway: Caution is Key for LULU Stock Although Lululemon continues to perform impressively, the major headwind it faces is a shifting consumer economy. Whether from a return to the office or a decline in the economy (or both), the athletic apparel retailer may not be able to depend on prior upside catalysts. With the smart money seemingly hedging their bets, investors, at the very least, should approach LULU stock with skepticism. Disclosure

Amazon's stock ( NASDAQ:AMZN ) has rallied by an impressive 66.7% year-to-date. The big question is whether it's a wise move to chase the stock. The current momentum behind the e-commerce and cloud behemoth is undeniably enticing, whether you're considering adding to your existing position or initiating one. However, my optimism wanes when I look at Amazon's current stock price. Despite some positive Q2 highlights, the stock's current valuation is very difficult to justify. As a result, I'm neutral on AMZN stock. Amazon's Retail Business is Growing, but Profits Remain Thin Amazon's retail business has historically held back the company compared to its rapidly growing AWS segment. Nevertheless, growth in retail resumed in Q2, and the company was even able to reverse last year's operating loss into an operating profit. Specifically, the North American Retail division posted net sales of $82.5 billion, implying a year-over-year increase of 10.9%. The division's operating profit also came in at $3.2 billion, greatly improving from last year's operating loss of $627 million. While Amazon's North American Retail division undoubtedly marched in the right direction in Q2, when we step back to examine the broader perspective, the overall outlook appears less enchanting. In fact, the $3.2 billion in operating income still implies an operating margin of just 3.9%. This suggests the following two issues: Firstly, the division's net income (although not directly reported) is even thinner when accounting for the interest expenses (due to debt) related to that segment. Secondly, such a thin margin means that operating income can easily turn negative again during unfavorable trading periods. This includes temporarily weaker consumer demand or inflation pressuring Amazon's expenses. In the meantime, Amazon's International Retail business continues to record losses. The division's sales grew by 9.6% to $29.7 billion. However, its operating loss came in at $895 million. That's a lot of money to lose on an operating level from a business that's supposed to have matured significantly at this point. AWS Growth Decelerates, Profit Margins Shrink Turning to the AWS segment, I believe that Amazon's crown jewel is losing its appeal. For starters, the segment’s growth has been gradually decelerating. Just take a look at AWS' revenue growth rate in recent quarters: Q1-2022: 37% Q2-2022: 33% Q3-2022: 27% Q4-2022: 20% Q1-2023: 16% Q2-2023: 12% The gradual sequential deceleration couldn't be more evident. At its current pace, I wouldn't be surprised if the segment's growth were to slip into the single digits in Q3-2023. So, what's the reason behind this gradual deceleration? The answer is very straightforward -- rising competition. The days when AWS was roaming freely in Cloudland are over. Alphabet’s ( NASDAQ:GOOGL )( NASDAQ:GOOG ) Cloud and Microsoft’s ( NASDAQ:MSFT ) Azure are constantly battling for market share. This is evident in both these companies' cloud segments, whose higher growth rates suggest they are capturing market share faster. Specifically, Alphabet's Google Cloud grew its revenues by 28%, while Microsoft's Azure grew its revenues by 26% during the same period. If that didn't signal bad news already, AWS' operating income declined compared to last year. It landed at $5.4 billion compared to $5.7 billion in the prior-year period. Clearly, this result demonstrated the effect growing competition can have on a company's ability to scale its profitability. Amazon seems to be investing more in AWS to remain competitive, and even then, the segment's growth can't really impress. Has Amazon's Valuation Run Ahead of Itself? In my view, Amazon's valuation may have run ahead of itself following the stock's year-to-date rally. On the one hand, Amazon's total operating income improved in its most recent Q2 results, primarily due to the North American retail division reversing last year's operating losses. On the other hand, I just cannot see how Amazon can make enough money in the coming years to justify its $1.46 trillion market cap. For context, consensus estimates point to Amazon reporting EPS of $2.17 this year. This implies an absurd forward P/E ratio of about 65x. While EPS is expected to grow further to $3.03 in fiscal 2024, again, that implies a very rich P/E of around 46.6. These forward multiples are notably higher than those of the S&P 500 ( SPX ) and most mega-cap stocks. Given the razor-thin margins in the retail segment and the declining profits in AWS, it's very hard to argue that Amazon stock is not overpriced at its current levels. What are Analysts Saying About AMZN? Turning to Wall Street, Amazon continues to boast a Strong Buy consensus rating despite its elevated valuation. This is based on 39 Buys and one Hold assigned in the past three months. At $175.63, the average  Amazon stock price target suggests 24.4% upside potential. If you’re wondering which analyst you should follow if you want to buy and sell AMZN stock, the most profitable analyst covering the stock (on a one-year timeframe) is  Ross Sandler from Barclays, with an average return of 30.47% per rating and a 79% success rate. Click on the image below to learn more. The Takeaway Overall, while Amazon's year-to-date rally may be tempting to chase, caution is warranted. Despite some positive developments in Q2, the stock's current valuation appears stretched and challenging to justify. The Retail segment's thin margins and the deceleration in AWS growth due to increased competition raise concerns about the company's ability to sustain its current valuation. With an exorbitant P/E ratio versus most market benchmarks, it's hard to ignore the possibility that Amazon stock could undergo a valuation compression, shedding away its recent gains. Accordingly, I remain neutral on AMZN stock. Disclosure

Wall Street stocks ended lower on Tuesday as Oracle shares tumbled more than 13% after a weak forecast and surging oil prices deepened worries about persistent price pressures ahead of crucial inflation readings this week.

Wall Street stocks ended lower on Tuesday as surging oil prices deepened worries about persistent price pressures ahead of crucial inflation readings this week, while Oracle slumped after a downbeat forecast.

Sports fans can breathe a sigh of relief after Disney (NYSE: DIS) reached a deal with Charter (NASDAQ: CHTR) to keep ESPN on the cable provider. And this will be a win-win, as Travis Hoium highlights in this video.

The S&P 500 and Nasdaq fell on Tuesday as a jump in oil prices deepened worries about persistent price pressures ahead of crucial inflation readings this week, while Oracle slumped after its downbeat forecast and results.

The S&P 500 and Nasdaq fell on Tuesday as a jump in oil prices deepened worries about persistent price pressures ahead of crucial inflation readings this week, while Oracle slumped on downbeat forecast and results.

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Wall Street's main indexes fell on Tuesday as Oracle shares slumped, while investors awaited key inflation readings later this week for clues on the Federal Reserve's interest-rate path.

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Oracle shares plunged more than 10% on Tuesday after the company's weak forecast suggested that strong competition in the cloud-computing industry and a digital spending pullback were weighing on its revenue growth.

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