Why Steven Romick Is Staying Away From Amazon.com Inc (AMZN), W W Grainger Inc (GWW), and Fastenal Company (FAST)

Yet, Romick asks not to hurry up with bullish conclusions, as after a careful study conducted by him and his colleagues, both stocks don’t seem to have a bright future. He says that “efficient and ruthless competition in the form of Amazon.com is coming after them”. Steven highlights the long-term orientation of the $221.48 billion internet giant, who doesn’t care about immediate profits and is ready to sacrifice the price today for the sake of obtaining the market share of today (and hopefully tomorrow). He also mentions as examples Borders Group Inc (OTCMKTS:BGPIQ) and Barnes & Noble Inc (NYSE:BKS), whose once successful operations felt the severe pressure of Amazon.com.

Today Amazon.com has a very broad line of goods to offer, lower prices, and free delivery services for orders exceeding $49. It means that it will be even harder for Fasternal and Grainger to sustain their margins in the coming years, taking into account that Amazon.com has better buying power and connections with UPS. Already now, one can see in the simplified analysis that a 1% decrease in the gross profit of Fasternal leads to a 4.4% decrease in its earnings, while the same 1% cut in the gross margin of Grainger causes a 7.4% decline in its earnings. Therefore, Steven Romick doesn’t see a sufficient margin of safety for these stocks, while the major fundamental factors and analysis tell him to stay away from those investments. According to him, Amazon trades at an even higher valuation and is losing money, but it still might have a better potential future than Fastenal and Grainger. Ken Fisher’s Fisher Asset management held 2.47 million shares of Amazon.com Inc (NASDAQ:AMZN) valued at $917.46 million.

Disclosure: None